UK retirement age could hit 80 as pensions deficit sets off time bomb

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The UK has been told to prepare for a workforce of 80-year-olds as the world’s leading economies struggle to deal with a £54 trillion pensions time bomb.

The amount could balloon to an astonishing £334 trillion by 2050 unless policymakers take urgent action, the World Economic Forum has warned.

An ageing population, falling birth rates and poor access to pension products were the main sources of the widening gap between what people are saving and the amount they would have to put away to adequately fund their retirement, the WEF said.

The projection is based on the Organisation for Economic Co-operation and Development’s (OECD) recommendation that people should have retirement income of around 70 per cent of their salary.

On this measure, the UK’s shortfall is higher than £6.2 trillion and set to increase by around 4 per cent per year, reaching more than £25 trillion by 2050.

To avoid the looming crisis, governments need to to improve financial literacy and increase access to pensions in order to boost the amount people save, the WEF said.

“Policymakers do need to be thinking now about how to integrate 75- and even 80-year-olds in the workplace,” Michael Drexler, head of financial and infrastructure systems for the WEF told The Financial Times.

The WEF said life expectancy has risen rapidly since the 1950s, increasing by two years every decade on average. Babies born now can expect to live longer than 100 years, according to the WEF report.

As the population ages, there will be fewer workers for every retired person. The problem has been exacerbated in recent years as investment returns have remained below their long-run average.

Jason Coates, of law firm Gowling WLG said the economic argument for later retirement ages in the UK “seems incontrovertible”.

He added: “However, there are real issues in making this work in practice. First, we need to ensure that the job market is flexible enough to provide sufficient work for older people before they reach state retirement age.

“Second, there will be some people who cannot carry on the work they have always done, or been trained to do, for physical or mental reasons and we will need a public safety net for them.”

The key will be to generate sufficient economic growth to plug the gap but this may not be easy, Mr Coates said.