more generous than previous state pensions, but would still lead to a “big drop” in living standards for middle and high-income earners who hadn’t put money toward a private pension fund during their life, according to the IFS.
The state pension age is currently 66 years old, which on average means that a man’s pension has to cover another 19 years of his life, while a woman needs to have saved enough money to account for another 21 years once she leaves employment, according to life expectancy data from the Office for National Statistics.
The state pension age is set to increase to 68 between 2044 and 2046, according to the ONS, which, without reforms, will only create a more challenging retirement environment, according to Nigel Peaple, director of policy and advocacy at the Pensions and Lifetime Savings Association.
“Increasing the State Pension Age will only escalate pensioner poverty which falls disproportionately on those who have lower incomes and retire early due to ill-health,” Peaple told CNBC via email.
A ‘big issue’ to address
Even when people are putting enough money into their pensions, there is much debate as to how that money is being used and whether it is being invested in the right places to maximize returns.
For example, the recent shift in bond market behavior on the international financial markets means the composition of defined benefit pensions needs to change, according to Nicholas Lyons, lord mayor of the City of London, which is “a big issue” that needs to be addressed.
“Asset managers have been able to invest in fixed income instruments because we’ve been in a bond market rally for 20 years,” Lyons told CNBC, but the new inflationary environment coupled with higher interest rates means that needs to change, he said.
“We need to invest in the real economy, so this is a time where we shouldn’t look at what’s happened in the last 15 years and say that’s going to carry on forever. We need to see this as point of departure,” he added.
