Pension reforms change retirement expectations

30 Mar 2020

With a higher state pension age for men and women, and automatic enrolment into workplace pensions, not to mention the pension freedoms, the last decade has seen substantial reforms to retirement savings in the UK.

Those reforms have changed our expectations about retirement, according to new research by the Institute for Fiscal Studies (IFS).

For instance, the average age at which men and women aged 40-54 expect to retire has increased by more than two years, and growing numbers of people are confident that they will be able to fund their lifestyle after stopping work.

The IFS found that one-fifth of those aged 40-54 in 2016-18 (21% of men and 20% of women) now expect to retire at 67, compared with less than 1% of such men and women a decade earlier.

Notably, however, despite men and women in this age group now having the same state pension age, women on average still report expecting to retire earlier, by almost 1 year (at age 64.2 compared with 65.0).

Between 2006 and 2017 the average age at which men and women aged 40-54 expect to retire increased by 2.1 years (from 62.9 to 65.0) for men and 2.4 years (from 61.7 to 64.2) for women. This is greater than the increase in the average state pension age of 1.5 years for such men and 1.8 years for such women over this period. The rise in expected retirement ages is similar across those working in different sectors, those with different levels of health and those with different private pension arrangements.

"The last decade has seen a striking increase in the ages that those aged 40 to 54 expect to retire at," said Rowena Crawford, an associate director at the IFS. "This suggests that increases in the state pension age are being noticed and, at least by some, reflected upon -- especially given that, for the first time, significant proportions report that they expect to retire at age 67. It will be interesting to see whether future generations reaching these ages expect to retire later still, given plans to increase the state pension age further."

Confidence in the adequacy of retirement incomes has also improved, the research showed. The proportion of people feeling confident that their income in retirement will provide the standard of living they hope for was still relatively low, at just over half, but increased by 11 percentage points over the decade to 2017 (from 42% in 2008 to 53% in 2017). A similar pattern of increased confidence was seen in both men and women, those working and not working, and those working in the public and private sectors.

The research also found that saving outside of pensions has become more common since 2012, having fallen between 2008 and 2012. This is likely driven by changes in economic conditions -- in particular, increases in household incomes and general levels of confidence, the IFS said.

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