Andrew Tully, pensions policy manager at Standard Life, explains how changing demographics will reshape the economy of the UK and the world

Andrew Tully, pensions policy manager at Standard Life, explains how changing demographics will reshape the economy of the UK and the world

In fairly blunt terms, the number of pensioners is growing and the number of working people isn’t. The possibilities are that working people pay more tax, pensioners get lower state benefits (or get them at a later age), or people will have to save more for themselves. Most likely, what will happen is all three.

Already the government has announced that the state pension age will be moved to
68 by the mid-2040s, as a way of reducing state benefits. In 2012, we’re expecting significant pension reform, encouraging people to save more for themselves. Employers will feel the brunt of this, as they will need to pay at least three per cent of a worker’s salary into a pension scheme.

This isn’t a UK issue, it’s a worldwide issue, and it’s not going to go away. Other countries have dealt with it in different ways: Australia, for example, has a compulsory pension system which was hugely unpopular when it was introduced in the mid-1980s, but is really valued now that people have got a bigger pot of money.

The good news is that an increasing number of people over state pension age want to continue working, perhaps not full time, but to ease themselves into retirement. In pure numerical terms, this may not make up for the shortage of workers, but these people may be very valuable, occupying senior positions or running their own businesses, creating jobs for others. That “cliff edge” situation, in which people are given a watch on Friday and retire on Monday, is less common these days.