Blow to early retirement hopes

THE dream of early retirement is disappearing for a generation of workers, researchers have warned. Longer life expectancy combined with a crisis in pension payouts means hundreds of thousands can no longer look forward to beginning a life of leisure in their fifties.

The respected Institute for Fiscal Studies said pensions and savings will simply no longer stretch to allow people to quit work years before they reach their sixties.

Its gloomy report appears to signal the end of an era in which half the male workforce retired before 60. The findings follow months of mounting evidence that millions will be unable to rely on the pensions they thought would provide a comfortable old age.

Many are thought likely to have to quadruple their contributions to compensate for lower returns from private pension schemes, together with the falling value of the State pension and State benefits.

Professor Richard Blundell, author of the IFS report, said: 'As the nation gets wealthier, it will want to spend more time in leisure and retirement. But individuals will also want to have access to sufficient resources to maintain their standard of living. With earlier retirement and longer expected lives, this means a need to save more, often considerably more, for retirement.'

He said the cold financial climate will stop the early retirement boom of the 1980s and early 1990s, when only 40% of men in their early sixties were still working, a total of 700,000. In the late 1960s, the figure was double that, at 1.4m.

'The early retirement trends of the 1990s are very unlikely to continue for the majority of men and women,' said Professor Blundell. 'Recent changes to public and private pension schemes are swiftly reducing incentives for the vast majority of men and women to retire early.'

Those incentives have included the reliability of the pensions schemes that in the 1980s covered half of all workers, good State pensions and generous and easily available State disability benefits.

But private pension schemes are now paying out less, partly because of stock market falls over the past two years and partly because of the need to pay throughout the longer lives of scheme members. Chancellor Gordon Brown has also clipped private pensions by taxing pension funds.

Many firms have been switching away from old and reliable 'final salary' pensions that give guaranteed payouts to more risky - but less expensive - stock market based schemes.

Some may be unable to pay out their 'final salary' commitments. One survey last year found that 17 companies in the FTSE 100 index - including major names such as Tesco, Marks & Spencer, ICI, Scottish & Newcastle, Vodafone and BT - had major cash shortfalls. This week, supermarkets chain Iceland became the first company to force staff out of a final salary scheme and into a less reliable alternative.

And those looking to the State for an income are finding that the State pension is not rising and and that disability benefits are no longer as lucrative.

Brown's decision to put the State pension up by only 75p in April 2000 put the writing on the wall for those who still believed they could live comfortably on the State.

The pension is now £72.50 for a single male pensioner over 65 or woman over 60, but those who rely on it are more likely to claim the means-tested minimum income guarantee of £92.15 for a single pensioner and £140.55 for a couple.

There have also been cutbacks in incapacity and invalidity benefits since the mid-1990s which have hit hundreds of thousands of men who used them as a route to early retirement.

One analysis in the late 1990s estimated that 850,000 of the 1.45m men who claimed incapacity benefit because they were supposedly unfit to work were in fact capable of holding jobs but were using the benefit simply to stop work.

Early retirement has reduced the importance of the official retirement age of 65, once seen as a key marker by millions but now a landmark for fewer than half of male workers.

The end of early retirement may wipe out the idea of a retirement age entirely as healthier workers try to stay on longer and firms faced with an ageing population find it harder to recruit young workers.

Those taking early retirement have been mainly men - as more women have flooded into work, numbers of women working over the age of 60 have remained virtually unchanged.

Figures show that men are now living on average three years longer than than they did three decades ago - to the age of 75 - and women nearly four years longer, to 79. And there is also evidence that fewer old people are disabled by illness than in the past.

Pensions will also have to pay for growing numbers of older people, with over-65s accounting for four out of ten of the population by 2030, double the proportion of the 1960s.