"We’ll probably have to work forever." It's the kind of throwaway comment my friends and I make, often directed at our sixtysomething baby boomer parents, who are starting to enjoy long, slow Monday afternoons in garden centre cafés.
But this week’s news makes it look a little less like a joke. The Centre for Social Justice – a think tank chaired by former Conservative leader Iain Duncan Smith – has had a bright idea. In order to tackle the increasing cost of an ageing population, it has proposed that we should all retire later. It wants to see the age at which we all receive the state pension rise from 65 – where it currently is – to 75 by the year 2035.
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Pensions aren’t something you really want to think about when – let’s face it – you’re probably still renting and/or in your overdraft but the truth is that the earlier you start, the better quality of life you will have when you get older.
Having to wait another 10 years from the current state pension age to receive a pension is the equivalent to missing out on over £80,000, according to the insurer Royal London. That, I think we can all agree, is not an insignificant amount of money.
Whether the government would ever adopt something so unpopular remains to be seen. Now more than ever, with a general election looming, they need all the votes they can get. But that’s not the point. That this suggestion has even seen the light of day highlights that whether or not there is a safety net in place to help fund your retirement, and when that kicks in, rests on the whim of politicians.
Younger generations, especially millennial women, should care about this. You need to have at least £260,000 saved by the time you retire to maintain your standard of living if you earn an average salary, according to Royal London.
But right now, as we know all too well, the cost of living is hitting us hard. High transport and housing costs, plus stagnant wages and student loan repayments, not to mention hen dos, don’t leave us with much at the end of the month to lock into a pot for when we are old.
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The gender pay gap means women are disproportionately affected, with many going part-time to take care of children, sacrificing private pension savings in the process.
This is compounded by the fact that many of us will need more money than our parents in retirement. A third of millennials will be renting forever, according to the Resolution Foundation, which means younger people also have to save enough to be able to continue to pay rent when they are in their 70s, 80s and 90s.
And as with everything else, the renting crisis is hitting women harder than men. As a recent report from the Women’s Budget Group has revealed, there is nowhere – not a single place in the UK – where housing is affordable for women.
At the moment, when you reach state pension age you receive £168.60 a week (£8,767.20 a year). This is based on you having accrued 35 years of National Insurance contributions. You pay National Insurance, like income tax, automatically when you work; you can also claim credits if you don’t work because you are disabled, on maternity leave or looking after children. National Insurance contributions go towards funding the state pension.
What many people do not realise, however, is that the National Insurance contributions you and I make now go towards funding today’s pensioners, not our own retirement, which is why people often accuse the state pension system of being like a Ponzi scheme. We’re all paying in, but we won’t necessarily reap the rewards on the same terms as older people right now do.
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The age at which people receive their state pension is already slowly creeping up. By next year it will be 66, by 2026 it will be 67 and between 2044 and 2046, it goes up to 68.
Tom Selby is an analyst at the investment company AJ Bell and warns that if the government decided to "dramatically pull the rug" by increasing the state pension age, millions of people would need to consider how to plug the gap "or an entire section of the workforce risks facing penury in old age."
At the moment, he told Refinery29, "the state pension makes up a significant portion of many people’s income when they get older, providing a guaranteed bedrock upon which they can build a retirement plan." But with things looking less certain, "anyone who wants to retire should not rely on the state and instead take responsibility for their future."
It’s not all doom and gloom. If you have an employer you are automatically put into a company pension scheme to start saving into a private pension. At the moment, contributions are a minimum of 8%, but some experts suggest you should be saving 12% or more.
However, it’s worth noting that if you are freelance or self-employed you do not benefit from any pension contributions from an employer. The Office for National Statistics estimates that just 14% of self-employed people are saving into a pension. As more women choose flexible freelance working to fit a career around pregnancy and childcare, a lot will be left in a very precarious position.
Whether or not the state will support you as a seventy-something is probably the last thing on your long list of financial priorities, but whether we like it or not, it looks like we are going to have to take the thought of becoming a retiree – and if we will ever be able to – a lot more seriously.