Two articles appear in the FT today that deal with the same issue, the burgeoning pension support older people get and the lack of control of the costs of providing for older folk.
The first is top down, looking at the problems through data.
John Burn-Murdoch’s article points out the irascibility of the elderly when faced with cuts in winter fuel perks, the second focusses on how little those of us getting old know about our progress towards the benefits John writes about, it is from Mary McDougall and results from some research on consumers by wealth manager Charles Stanley.
Actually the amounts being spent on pensioners is growing fastest in Britain and France
but that is only putting us back into the middle of the pack (having been well behind), France is in a much worse place from the thrall of pensioner power
The FT’s mega-data survey also shows how much faster pensioner income has grown than worker income over recent years. As a result, we are well in the pack. Those who would have us follow Australia, (as just about everyone in financial services wants us to) are going to have to explain that Australia is not a great place to retire, it has the lowest replacement ration of any country in the OECD analysis, from state pension benefits.
But there are changes coming in the UK
65 is still considered “retirement age” by many surveyed by Charles Stanley, the slow regression of State Pension Age first to 67 (almost upon us) and then to 68 in the medium term (2044-2046).
Mary McDougall’s article suggests that a very high percentage of ordinary people who will need their retirement savings have little idea of what’s going on with the rules
these changes were not just technical but “deeply personal . . . they affect when people can stop working, how much they can afford to spend, and what they can leave behind”
People do not know what their pension pots are going to pay them as pensions. The dashboard which may be available in 2026 (but more likely 2027 now) will give people some understanding of private pension buying power by way of replacement income (pay) but the Statutory Money Purchase illustration (SMPI) will be the first time many people will see in one place what private sector pensions are likely to give them at a given point (State Pension Age).
I suspect (Richard Smith’s point) that the revelation of the dashboard will be”deeply personal..” – it will be the first time that many people will think strategically about how they live the rest of their lives.
Bottom up and Top down, trouble’s coming
One FT article points out that we in Britain have been writing out cheques to our older selves since we started upgrading our state pension , brought in pension credit and have largely ducked the “big one” as Tom McPhail calls it, the reality that our state pension age should increase to 75 not to hurt the young. Tom has the realism to point out that for most people, to bridge to 75 would mean spending private pensions that bridge to 75 and pay at a massively reduced or not at all from 75 on – that’s radical and he put the idea in the Times.
That’s because he sees what the FT is pointing out.
Top Down we cannot afford the cheques we have post-dated but are coming payable in the next 20-30 years.
Bottom up, most people don’t have a clue about the state of their future finances but hope that being in a pension (AE savings scheme actually) will do.
The third ingredient in the brewing problem is that from pretty soon, the reality of pension savings will become obvious from the dashboard and when people work out that to retire they will need to take a big pay cut (for the rest of their lives) then they will have to get real about when they stop working.
The way that workplace pensions are paid back to people by default (eg if people don’t opt-out of what is coming their way) will be acutely contentious.
John Burn-Murdoch points to winter fuel revolts, Charles Stanley point to the anger among the middle classes with the introduction of inheritance tax on unspent pension pots. Both types of indignation should be deeply worrying to Government, they’ve had to put a hard man in to the DWP to get unpalatable facts into people’s heads. Pat McFadden was appointed Secretary of State for Work and Pensions on 5 September 2025 – the old one didn’t get the tough stuff done.
Torsten Bell is another tough one. He is now in the Treasury sorting out the budget and what we will have to face to pay the bills (the post-dated cheques) of older age. It’s a triple shock from a triple lock, expect a cut in pensioner income as a hand-out and a call to people to “get real” about when they can rely on their private pension income.
The alternative is France’s problems in our country.
As the FT finishes- so will I!
Voters often accuse politicians of fiscal sleight of hand, but here they are complicit in presuming ever larger pension cheques can be conjured like rabbits from a hat. At some point, both groups must confront mathematical reality.
I can’t agree that Tom McPhail is being realistic in suggesting using private pensions to bridge the gap between retirement and a higher state pension age of 75. It’s silly to think that there will be jobs for 70 year olds in future when the advance in technology means that there will be more and more automation of jobs currently done by humans. And so many people in physically demanding jobs are struggling to make it to 66 never mind 75, and where in the world is the average private pension pot big enough to fund even two years of living costs? Until we address the massive wealth disparity in this country we will continue to see the rise of right wing divisive politics as the consequences of inequality lead to more and more people having too little to live a decent life.
I have argued for many years that the solution needs to recognise that some will never be able to save and will need support. The segmented market needs segmented solutions.
There are 24 million of working age who don’t earn enough to pay income tax. This group need life long support.
950,000 pay the additional rate of tax. This is projected to rise in the current year to 1.13 million due to fiscal drag.
Proposed double taxing of remainder funds only affects 1500 people. The money collected in taxes is to leave the area of pension provision into the Treasury black hole. A gesture, not a meaningful sum.
For the rest of the market there is a flaw:-
Most of the projections are based on a single life. For the majority a joint life income should be provided for. Based on the 2022 census
Total Population Aged 68: 63,305
Estimated Single (Never Married): 4,313 (based on 6.8% of the 65-74 age group being single)
Estimated Widowed: 9,559 (based on 15.1% of the 65-74 age group being widowed)
Estimated Divorced: 11,458 (based on 18.1% of the 65-74 age group being divorced)
Estimated Total Single, Widowed, or Divorced: 25,330
Second flaw:-
Allowing those with inadequate income provision to take tax free cash is absurd.
Money is needed now to rebalance the economy. Let all those with more than £250,000 to take the excess at a special tax rate of 35%
I think the ONS website may have deceived you, John.
If you change the dataset to England & Wales the number aged 68 is 576,097.
The dataset default seems to be whatever the previous search was, Hartlepool in my case, and the number of 68s was thus very small.
Your other proportionate calculations will be more accurate, however.
The 2021 census of course ignores Northern Ireland and Scotland. In the latter case, the census year controversially was 2022.
This is a very interesting comment Brian
“Until we address the massive wealth disparity in this country we will continue to see the rise of right wing divisive politics as the consequences of inequality lead to more and more people having too little to live a decent life”.
Yes Tom McPhail is clearly letting his imagination run wild.
I’d suggest that all along, when the boomers were paying taxes and government investing it, they should have invested it more wisely.
They’re now facing a shortage of economic activity to fund the promises they made.
Clearly governments can’t see past their ends of their noses and so expecting them to see today’s young generation through to retirement accurately is an impossible task.
To pretend to even be able to see to that point in the future given their track record is somewhat offensive.
Instead they should focus on what they can do, and that’s provide freedoms and means to save for the future that aren’t complicated. Ie, ISAs.
“Charles Stanley point to the anger among the middle classes with the introduction of inheritance tax on unspent pension pots. Both types of indignation should be deeply worrying to Government”
I’m not sure this is a reasonable concern. Not too long ago there were none of the Conservative’s pension freedoms. DC pots were exposed to IHT (aiui), and DC pots certainly weren’t shielded from IHT.
For many boomers those changes/benefits were likely a sudden boon to their retirement, but were ultimately flashes in the pan of the retirement saving/planning timescales we’re talking about here.
Also, the pension sums taxed for IHT aren’t going to be that large, and aren’t going to make a dent on the government liabilities for pensions, especially public sector.
There also needs to be a broader realisation from the public that pensions are a government endorsed product. They have their claws in your money because of the tax incentives offered.
From mansion house reforms, future tax rates, etc, they can make a mess of your best laid plans.
Thank you Byron correction noted.
However the principal of segmentation of the market and a range of solutions are required. There is no one size fits all