New research from the University of Bath has revealed a growing disconnect between younger workers’ retirement expectations and the realities imposed by rising State Pension ages in the UK. The study, published in the Journal of Pension Economics and Finance, highlights that while older Britons are delaying retirement, many younger workers, particularly women, are not adequately adjusting their plans, risking financial shortfalls in later life.
The findings are based on data from the United Kingdom Household Longitudinal Study, a comprehensive survey that examines the impact of the 2011 and 2014 Pension Acts. These legislative changes accelerated the equalization of the State Pension age for men and women, raising it to 66 or 67, depending on the date of birth.
Impact of Pension Age Reforms
The study’s key findings indicate a significant effect of the pension age reforms on retirement behavior. A one-year increase in the State Pension age reduces the likelihood of retirement by 8.2 percentage points for men and 6.4 percentage points for women. Homeowners with occupational pensions are more likely to retire at the State Pension age compared to renters without such pensions.
“Ensuring individuals adequately prepare for retirement is of paramount importance due to increasing longevity,” said Dr. Ricky Kanabar, lead researcher from the University of Bath.
The research also shows that baby boomers, those nearing the State Pension age, are delaying retirement. In contrast, Gen X, born in the 1960s and early 1970s, are not aligning their retirement expectations with policy changes. This trend is particularly pronounced among women with occupational pensions who continue to plan for early retirement despite policy shifts.
Challenges for Younger Workers
The study highlights a significant gap between expected and actual retirement behavior. Younger workers anticipate retiring before reaching the State Pension age, unlike older workers who adjust their plans closer to retirement. By this stage, opportunities to increase savings and extend working years are limited.
Dr. Kanabar emphasized the need for increased awareness among younger workers, especially women, about the implications of later State Pension ages. He warned that overoptimism about retirement income and reliance on workplace pensions from the mid-50s could force unexpected changes in employment plans later in life.
“We are seeing a pattern where some people are working longer due to rising State Pension age, but younger cohorts, especially women with an occupational pension, are adjusting their expected age of retirement downward in response to policy changes,” Dr. Kanabar noted.
Policy Implications and Future Steps
The research team calls for more efforts to educate younger workers about the realities of retirement funding and the necessity of adjusting expectations. Tools such as the government’s Midlife MOT and the upcoming Pensions Dashboard are recommended to aid in planning.
Dr. Kanabar concluded that policymakers must engage with these groups now to enhance financial resilience in later life. The study serves as a crucial reminder of the need for realistic retirement planning amidst changing pension policies.
For more detailed insights, the full study is available in the Journal of Pension Economics and Finance, providing a comprehensive analysis of the effects of State Pension age reforms on retirement behavior in the UK.
