Midway through our first visit to Copenhagen, my wife and I were getting ready to leave the remarkably accessible Christiansborg Palace, seat of the Danish parliament, when we commented to our Danish tour guide how noticeably polite opposing MPs had been when addressing each other during a debate we had just witnessed.
Nodding in acknowledgement, the guide told the tale of a former dock worker, a rough-and-ready man who, when first elected to parliament, retained his robust style of debate. In one early clash, he referred to an opposition MP as an ‘idiot,’ a phrase which caused a shocked speaker to call an immediate halt to proceedings. Reprimanding him for his un-parliamentary-like language, the speaker reminded him “that’s Mister Idiot if you please.”
The rebuke might be apocryphal, but it successfully conveys Copenhagen’s innate, well-mannered courtesy.
Not everyone can make the successful leap from dockworker to national MP, but if recent events in Denmark are a guide, it’s conceivable that a high proportion of older people in this country will have to take a job at a point when they may have thought their working life had finished. Danes have been aware of the necessity to do so for almost two decades, thus ensuring that the prospect of ‘early retirement’ has become an increasingly remote dream.
By law, Danish legislators must decide every five years whether to increase the retirement age if the life expectancy of the nation’s 60-year-olds increases. Earlier this summer, Denmark’s Parliament adopted a bill to increase the state pension age to 70 from 2040. The bill is a direct consequence of legislation introduced in 2006 which effectively linked the state pension age to both life expectancy and the retirement age. Denmark’s current official retirement age is 67; this will increase to 68 by the end of the decade and to 69 in 2035. Five years later, Danes will be retiring at 70.
Danish politicians maintain that increasing the state pension age will have a positive impact upon pension savings as the nation’s older cohort delay their withdrawal from the labour market. It will also prevent state pension costs spiralling out of control by avoiding a scenario where Danes live longer yet continue to pay the same amount of tax over their lifetime.
Could the UK introduce a similar retirement age ‘escalator’ similar to the one operating in Denmark? Nine OECD nations, including Denmark, already do and few economists believe that while the UK is currently on track to have the retirement age increase to 68 by 2046, that date will almost certainly come forward. Instead, it seems likely that by 2046, the UK state pension will not be paid to people before they reach the age of 70.
This reality is bound to have an impact upon millions of 50- and 60-something people who might currently display a steely determination to finish full time work once they reach the retirement age of 67. A very large percentage of these folks want to ‘keep their eye in’ by working part-time after they’ve ‘officially’ retired, combining part-time work with ambitious retirement plans ranging from learning to play the piano, taking more exercise, travelling (everyone has a travel bucket list), writing a novel, or pursuing a host of other interests.
Why is this? In the space of a generation, 60 has become the new 35; attitudes to later life have changed dramatically, particularly in the wake of the Covid pandemic. Given our general good health, almost all of those things we wanted to tackle during our mid-thirties, only to find we were short on both time and financial resources, are still do-able. There are, of course, several prerequisites if long-held ambitions are to be met. Maintaining good health is top of the list. Having the money to write novels, swan off on cruises or to become the new Russ Conway is a very close second.
Which brings us neatly to a poll undertaken by the Nationwide Building Society. The society polled more than 1,000 people aged between 40 and 60, asking them a series of questions relating to pension provision.
The headline conclusion was a cause of justifiable concern after the building society found that around one third of folks expect to survive on a state pension.
Now that is ambitious.
The Nationwide calculated just how ambitious and discovered that, if you’re relying solely on the state pension, you’re likely to find that each month, you risk being around £380 out of pocket thanks to a worrying gap between expectations and reality.
This significant shortfall, a shade over £4,500 a year, could prove a major setback for millions of older folks currently flicking through cruise company brochures or checking out the cost of a new conservatory.
Fortunately, even though almost two-thirds of middle-aged people have not made some form of pension provision, those planning their finances for the time when they retire have a ready-made option to rectify matters.
Equity release enables UK homeowners aged 55 and over to release a proportion of their home’s value as a tax-free lump sum.
For people who have cleared their mortgage, releasing equity could provide a cash cushion – money they can spend how they wish. For those who still have a mortgage, replacing it with a lifetime mortgage that offers a tax-free lump sum could offer some much-needed relief to their finances.
Whichever option homeowners opt for, the subsequent boost to their disposable incomes could allow them to satisfy those long-harboured ambitions or simply supplement their monthly incomes.
Releasing equity is a big decision and no-one should embark on the process without taking qualified financial advice. Equity release can affect the value of your estate and have an impact upon your entitlement to means-tested state benefits, so consulting with an adviser who can explain these implications in greater detail makes enormous, good sense.
Almost all European capitals crave the ‘urbane’ moniker, that sought-after badge of cultural sophistication and refinement. Some are far too big to justify it; others manage it, but only in pockets, while a number pull out as many cultural stops as they can in an attempt to warrant it. Copenhagen achieves it without trying. Whether the UK’s middle-aged cohort wishes to follow the Danish lead on pensions is, however, another matter.
