Default Retirement Age to Be Phased Out

The government has announced plans to phase out the default retirement age. As of April 2011, workers we will see the phasing out of the normal retirement age of 65 allowing individuals to decide when they want to retire.

Changing working trends

The move should coincide with changes in working patterns as many individuals already plan to work late into their 60s and even early into their 70s, either on a full or part-time basis.

It is becoming a common trend now to work past 65. This trend was accelerated by the recent economic slump as many individuals were forced to work longer due to the fall in pension fund values resulting from the stock market decline.

In a recent research report by the consulting firm Aon, it was found that 60 per cent of workers expect to have to work longer due to the economic slump, with over 30 per cent expecting to work as long as an extra 5 years.

In a separate piece of research the UK-based insurer Aviva, found that 68 per cent of people wanted to work past the current state retirement age anyhow.

More flexibility

Many industry consultants support the governments new plans as it gives workers more flexibility to decide on their own retirement plans.

The main issue with the state fixed retirement age is that many people have not acquired enough funds for a financially healthy retirement by age 65. It is possible under the new plans that workers will have able to continue accumulating funds until they can afford to retire.

With the current default pension age standing at 60 for women and 65 for men, the government state that workers can increase their state pension earnings by as much as 10 per cent by working an extra year. In any case, the state pension eligibility age is expected to rise by an extra year after the government has conducted a consultation period which is to start soon.

Despite new government plans to encourage employees to work longer, employers may still be able to impose a fixed retirement age if they have good cause to do so.

Any increase in the state pension age or removal of the state retirement age should come with more government encouragement for savings to support our retirement.

Meanwhile, if you’re working longer, don’t forget to align your Long-Term Income Protection policy with your new expected retirement date.