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The elephant in the room  There are some policy areas that are so complicated that the public prefer to ignore them and politicians feel reluctant to address them.  I want to tackle some of these "elephants in the room" in this "Too Difficult" series.  I have a little list which starts with planning, pensions, social care and local government finance but I suspect there will be others.

Pensions are a bit like many people's attitude to death or St Augustine's attitude to chastity:  We know we ought to plan for them but not yet!  There are always reasons to put off pension planning.  The issue is complicated and many people think is beyond their competence to make a rational judgment.  There are plenty of pressing reasons to put off serious thoughts about pension provision until ..... later ......

Pension finances are horrendously complicated and inevitably make for policy areas where the public is likely to rely on emotion rather than financial logic.

Despite this and if we can keep to fundamentals, I believe most people can understand the principles of pension funding and can engage in a sensible debate on how to move forward.

I started writing this as a single page but it is becoming clear that the subject is just too complex to put on a single page so I am going to break it up into four constituent parts:

This page deal with retirement age.  Later pages will discuss the other pensions issues:

For a long time there was a tradition in the UK that men retired at age 65 while women retired when they were 60. This was thoroughly illogical if you recognise that women have always had a greater life expectancy than men.  The CIA World Factbook 2008 ranks life expectancy in the UK in 2011 as 78 for men and 82 for women. However, retirement ages are changing in the UK in recognition of changing demographics and financials.

Retirement Age for Women:  Prior to the Coalition government announcements on 20 October 2010, the UK retirement age was already set to rise for women, to bring them in line with men by 2020 at 65 years of age. However, that has now changed and the state pensionable age will now rise to 66 for everyone by 2020.  This is how it works.  The current UK retirement age for women is 60:

*    From 2010, women's retirement age will increase so that, by 2020, it will be age 66;

*    This will not affect women born before 1950;
*    Women born after 6 April 1950 and 5 April 1955 will have a retirement age between aged 60 and 65;
*    Women born from 6 April 1955 will have a retirement age of 65.
It doesn't stop there.  Between 2024 and 2046, the retirement age for women is set to rise again to age 68. .

Retirement Age for Men:

The current UK retirement age for men is 65.  Between 2024 and 2046, the retirement age for men is set to increase again to age 68.

The Employment Equality (Age) Regulations came into force on 1 October 2006.  They provide for a default retirement age of 65 on which employers can rely if they wish. The regulations make earlier retirement ages unlawful unless employers can objectively justify them. The regulations also introduce a statutory right for individuals to request postponement of retirement beyond the age of 65.  Employers must consider these requests.

x       The Conservative Party had outlined plans to raise the state pension age for men to 66 from 2016 - eight years earlier than planned. The pension age for women would also rise to 66 by 2020 under Conservative proposals - something the party said was needed to help reduce the UK's national debt. 

The Labour government had already committed to raising the pension age for men gradually from 65 to 68 between 2024 to 2046. For women it would rise from 60 to 65 over ten years from 2010. So why do the two parties want the pension age to go up? 

Currently, there are more than 12m pensioners in the UK - with many more women than men in retirement.

x The UK has an ageing UK population meaning that there will be many more pensioners to support. In 2001, the government's actuaries calculated there were 3.32 people of working age to support every state pensioner.  By 2060, it is calculated that the ratio will have fallen to 2.44 people of working age for every one state pensioner. In other words, there will be fewer working people contributing towards the system that finances the state pension. Both the Conservatives and Labour proposed raising the state pension age, taking into account people's longer lives. This means the amount of time spent in retirement, as well as government expenditure, will be reduced.

x Government proposals to raise the state pension age come not only amid difficult financial conditions but also as the UK population ages, putting increased pressure on government finances.

x       The UK is not alone. The world's population is also growing older and many other countries are facing similar problems.

x       At the same time, many western governments are experiencing the problem of rising expectations and diminishing resources.

x        In Greece, this is exhibited by a dogged determination to resist spending cuts despite the obvious inability of the Greek government to continue spending beyond its means.  

x        In France, there is strong resistance to any reform of the Spanish practices among many public sector unions. 

x        In the UK, there is a sizeable number of deficit-denying individuals who would continue to spend, spend, spend by adding to the national credit card despite the clear certainty that financial markets will mark up borrowing costs until this practice becomes no longer affordable. 

x       At the same time, the proportion of the population contributing to economic activity is reducing while the proportion looking to the working group for financial support is rising exponentially.

Disclaimer:  I have written this Blog on the basis of my own knowledge and research.  I am a Chartered Accountant but I am not qualified or registered as a financial adviser.  This Blog has been written to stimulate understanding of the political and financial issues concerning pensions.  It is not intended to be used by anyone to plan for their own pension needs beyond signalling to them the need to seek properly qualified advice. I hope it does fulfil its primary purpose of improving the underlying issues behind pension provision and promotes a healthy debate on the policy issues involved.