8th July 2016Retirement – why we need a new and broader definition

The date at which people chose to retire was usually in line with their state retirement age, meaning 60 for women and 65 for men. Today, retirement is no longer about clearing your desk on your 60^th or 65^th birthday and facing a work-free future.

How retirement age became the norm

The UK state pension system originally consisted only of means-tested non-contributory benefits that were introduced by the Old Age pensions Act 1908. The first contributory benefits scheme emerged in the Widows, Orphans and Old Age Contributory Pensions Act 1925. This scheme wasn’t universal and was only compulsory for manual and other low-paid workers. It was the 1942 Beveridge Report, ‘Social Insurance and Allied Services’, that marked a major break with the past and introduced universal coverage based on a social insurance model.  The National Insurance Act of 1946 introduced the basic state pension, and for the next few decades, the concept of retiring at state pension age remained relatively constant and universally accepted.

Living to a ripe old age

Life expectancy rose steadily over the 20^th century and into the 21^st century. By 2014, there were over half a million people aged over 90 in the UK, and the number of centenarians rose by 72% to 14,450. In the light of these statistics and other actuarial calculations the government revisited the state pension age, and gradually revised it upwards to cope with the strain of paying the state pension for many more years than had been envisaged at its inception.

Gradually, and for a variety of reasons such as a desire to keep active and engaged whilst at the same time supplementing pension income, those approaching retirement took to viewing their situation differently. Retirement became a more fluid concept. By 2014, nearly half of men and a third of women aged 60 to 64 years who received private pension income were still working. What’s more, many were working reduced hours, and instead of the abrupt end of work scenario experienced by workers in previous decades, taking a more gradual approach to their retirement. Research carried out by Canada Life shows that more than 60% of individuals now expect to continue working past their retirement age.

The trend towards ‘Pre-tirement’

As researcher David Black identified in a study commissioned by peer-to-peer lending firm Zopa, ‘Retirement is now rarely an event that you can plan to occur on a definite date in advance’.  ‘Pre-tirement’, the process of gradual reducing the number of hours worked, is a widely-accepted concept which generally begins in people’s 50s and can run into their 70s.

The implications for pension planning

Retirement planning is arguably something that should begin the moment anyone starts work.  With encouragement on offer in the form of tax relief on pension contributions (20% for basic rate tax payers), and the government’s major push to get workers into pension schemes via auto-enrolment, there are more opportunities than ever before to make provision for a comfortable retirement.

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