World’s population hits 8 billion

Societal structures will need to change to meet the needs of ageing populations - and better pension engagement is crucial.

Commenting, Alice Guy, Personal Finance Expert, interactive investor, says: “The global population has hit 8 billion as more of us are living longer -  great news but not without demographic challenges for governments across the globe. For the UK government there’s a huge problem coming down the track, and that’s how to pay for an increasingly elderly population.

“Like the rest of the world, the UK population is growing. But that population growth is slowing down: around 6% in the next 15 years compared with around 16% in the last 15 years.

“A bigger shift is the demographic make-up of the UK population.

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“In 1966, 12.3% of the UK population was over 65-years-old and 62.8% of the population was working age. By 2041, 24.3% of the population is expected to be 65 or older and only 58.3% of the population will be working age.

“Whereas in 1966 there were roughly five working people per retired person, today there are only around three working age people for every retired person. By 2042 there are expected to be only around two working-age people for every retired person.

“This huge demographic shift is leading to an increasing tax burden as the Treasury faces a growing state pension pot and burgeoning NHS costs. In the long run, it’s likely that the state pension age will be pushed ever older, as the government struggles with an increasing state pension bill.

“With most of us living for longer, it’s never been more important for working-age people to save for their own retirement. Workplace and private pensions are one of the best and most tax-efficient ways we can save for future.

“Workplace pension savers get an automatic top-up from the government and their employer, immediately boosting a £100 contribution to £200.

“Over time, investment growth can also vastly improve our pension wealth, boosting a regular modest contribution to a decent-sized pot.

“It’s important for pension-savers to check their fees and make sure they’re getting the best deal. Over time small charges add up and make it more difficult to save for a comfortable retirement. Many pensioners could save money and boost their wealth by consolidating older pots into one pot with cheaper annual fees.”

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “With many people now expected to live longer than past generations, societal structures will need to change to meet the needs of a population that will have a lot more older people. Lots need to change, but it’s important to remember that while we are all living longer on average, there is regional inequality in life expectancy. While many will be fit and able to continue working and making private provision for their pension until far later than the average healthy life expectancy, those that are not are currently penalised.

“The other elephant in the room is whether future governments will be able to maintain the benefits afforded to pensioners today – or some semblance of them at the very least. Will future generations benefit from the pensions triple-lock promise and pension tax relief, which are costly for the government to maintain at present? Insufficient retirement income should be regarded as a health risk in policy discussions. We believe the positive spin-offs from maintaining the state pension triple lock are numerous and it should be maintained.

“There are also healthcare implications that come with an ageing population. The harsh reality is people may have to dig into their own pockets to fund care in later life. Amid growing concern about NHS capacity, one in five (18%) respondents of our Great British Retirement Survey of 10,000 consumers list affording healthcare as their top financial concern.

“Uncertainty over the future of pension policy lays bare the importance of engaged retirement planning from a young age to ensure that retirement nest eggs will stretch far enough to cover a bumper life expectancy. Even a small regular contribution makes a big difference to your retirement and the magic of compound interest is likely the most significant benefit of investing early.

“We are living longer, and therefore we need to be smart with our retirement nest egg to ensure it lasts. As well as checking fees and choosing the right investment strategy, pension consolidation could be part of the solution. Many people end up with a ragbag of pension plans. Together, these schemes form an integral part of income at retirement, so it is important to get the best possible returns while they are still in the accumulation stage. But findings from our survey suggest there perhaps needs to be greater education on pension consolidation. Only 11% of our general population respondents have consolidated their pensions.

“Hopefully pensions dashboards will go some way in bolstering engagement in pensions and help savers make better informed decisions.”