There has to be much more onus on the individual to look after their own finances in retirement

There has to be much more onus on the individual to look after their own finances in retirement

22 June 2010 / by Rachel Mason

Nick Scarrett, head of investment and pensions at Fair Investment Company, comments on the announcement that there will be a thorough review into public sector pensions and that the state pension retirement age increase to 66 will be 'accelerated'.

Realistically, something had to be done; the state pension system in this country is simply unaffordable.

When the contributory state pension for all was introduced in 1948, the retirement age was 65 for men and 60 for women, which is the same as it is now, but the life expectancy was 66 for men and 70 for women.

Now, the life expectancy for men is 78 and women is 82, so we are all living 12 years longer as pensioners. This means the state is paying out a pension for men for an average of 13 years, compared to just a year when the system was launched more than 60 years ago.

Although the retirement age is set to rise, with women's matching men's between now and 2020, and the government due to accelerate the increase to 66, with the age gradually increasing to 68 by 2046, it still will have taken nearly 100 years to raise the retirement age by just three years, while in the same time, the average life expectancy will have risen by more than four times that.

The old age dependency ratio – which measures the number of pensioners for every 1,000 people of working age reached 310 in 2008 and even with the increases in the pension age it is expected to be 343 in 2051. 

It will be interesting to see what comes out of the review in the pension system, and hope it goes some way to help close the gap between contribution and payments, but whatever happens, the fact remains that there has to be much more onus on the individual to look after their own finances in retirement.

People need to be better educated about the importance of having sufficient retirement planning in place. It has never been more important to look at retirement planning, and that doesn't just mean standard pensions, there are plenty of options, for example, ISAs, investment bonds, venture capital trusts and unit trusts/OEICs.

The chancellor also announced the abolishment of the compulsory annuity age, which will give pensioners more freedom to choose when or if they take their annuity and more options of what to do with their pension.