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The longer goodbye

The default retirement age of 65 could shortly be a thing of the past judging by recent Government proposals.

The Government says it will be bringing forward a review of the default retirement age from 2011 to next year in response to changing demographic and economic circumstances and it says its aim is to move over time to no compulsory retirement age unless individual employers can justify it.

The announcement came soon after FSA chairman Lord Turner admitted that he wished he had been more radical in his pension review.

He said raising the retirement age to 70 by 2030 would reduce the need for means-testing by enabling the state pension to be fully equivalent to the minimum income guarantee.

The moves highlight the growing awareness of the need to make further provision for people living longer. It will also have an impact on financial advisers because if people are working for longer, this will change their retirement planning needs.

The default retirement age is currently 65. Under the employment equality age regulations, a UK employer can dismiss a member of staff without redundancy payments on a person’s 65th birthday.

Employees have the right to request to continue to work beyond retirement age and employers are obliged to consider the request but do not have to provide justification for a refusal.

Help the Aged and Age Concern say that around 25,000 people are forced out of work each year when they reach 65.

Both organisations are currently fighting a case in the High Court to get the default retirement age scrapped and say this law contravenes the EU directive on age discrimination.

Help the Aged and Age Concern charity director Michelle Mitchell says: “The promised review in 2010 is a step in the right direction but it does not come soon enough for thousands of people reaching 65 now who desperately need to carry on working to pay the bills, boost their pensions or simply because they want to.”

Watson Wyatt figures show one in 10 men over 65 are still in work and research from LV= shows that more than 900,000 people over 65 are still working, with a third of these working full-time.

Royal London head of communications Alasdair Buchanan says bringing forward the review is part of a sea-change in the retirement sector.

He says: “It has always been an artificial situation. One day you are working at full pace and the next day you have to retire and stop totally. There is much more awareness now of the concept of allowing more flexibility and phasing people into retirement. An adviser can offer really valuable services about how they can best match requirements.”

Standard Life head of pensions policy John Lawson says Standard has no set retirement age and he welcomes the review being brought forward.

He says: “People should not be discriminated against based on their age. If they are capable of doing the work, then that is what is important.”

But he says there can sometimes be an issue with keeping on older workers as they often block succession plans for younger workers.

He says: “Employers have to think about putting a succession plan in place and should write it into the employee’s contact.”

Lawson believes the Government will drop the compulsory retirement age altogether rather than simply raising the age limit.

But Hargreaves Lansdown pensions analyst Laith Khalaf says there are some potential social detriments to scrapping the age limit altogether.

He says: “It is worrying from an employer’s point of view as they will have to keep employing someone indefinitely. This could restrict the availability of jobs for people lower down the age spectrum.”

Khalaf does not believe this will make advisers’ jobs harder because the state pension age is still planned to rise gradually up to 68 in 2046 and this has more impact on retirement planning than the default retirement age.

But Lawson says any changes would create further oppor-tunities for advice as people would take phased retirement and have different work patterns, which makes retirement planning more complicated.

He says it would also reduce the tax burden on the younger population because if people work longer, they will pay taxes for longer and will be saving into a pension for longer. “People will stay in a pension scheme for longer than they would otherwise have done, so the pricing of the scheme should be better in the long term,” says Lawson.

Baker Tilly head of tax George Bull says the removal of the compulsory retirement age could have significant tax implications for the Government.

He says: “For employers, it offers no advantages, they must continue to pay National Insurance contributions at the same rate on earnings of over-65s as on younger employees.

“Meanwhile, the Government may not be receiving employees’ contributions but it will get their taxes and may also enjoy the benefit of deferring having to pay pensions to those who stay in work for longer. This is an important consideration for a cash-strapped Government who have to pay pensions out of contributions received rather than accumulated funds.”

But Scottish Widows says not everyone will welcome the scrapping of the rule. Retirement income and planning senior manager Alison Morris says: “There are many people who would like, or may need, the flexibility to work past the age of 65 but the majority of people continue to hope to retire earlier, on average at age 61.”


Careful with the China

It is always refreshing to come across a fund manager who is up front with their views and is not afraid of upsetting the marketing folk on the floor below. A fund manager admitting that now is not a good time to buy their fund says more than one that proclaims that it is now a great opportunity to invest.


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