Pension savers may need to factor the cost of sickness into their retirement plans as the UK’s healthy life expectancy plummets to its lowest level since records began in 2011, in a sign you could have to give up work much earlier than state pension age.
Healthy life expectancy has dropped just over 60 years for men and women in England, and to around 59 years in Wales.
Given the state pension age is currently 66 – and begins rising to 67 from this April – these figures show how there could be a significant gap where people are too ill to keep working and too young to get a state pension.
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For a 40 year old today the ill health state pension gap could be as much £172,000, adjusted for inflation under the triple lock, according to exclusive analysis by for MoneyWeek by Hargreaves Lansdown. For a 50 year old it could amount to £108,000.
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This is up from £150,000 for a 40 year old last year, and up from £93,000 for a 50 year old, with the increases due to the fall in healthy life expectancy widening the ill health pension gap.
By acting early the shortfall could be made up by saving an extra £500 to £700 a month into a private or workplace pension, the analysis showed.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Many people will be reliant on the state pension to top up their retirement income and so if they need to retire early due to ill health it could have a huge impact on their standard of living.
“Trying to fill the gap with their workplace pension can be really challenging and it shows the importance of trying to maximise contributions wherever possible throughout your working life.
“If your employer is willing to pay in more if you do – the so-called employer match – then this can be a great way of boosting how much goes into your pension but you can also make a promise to increase contributions whenever you get a pay increase. Over time even small increases can make a big difference and it can lessen the strain if you do need to retire earlier than you had hoped.”
How long will I live a healthy life?
In 2022 to 2024, the latest government data available, men in the UK could expect to live 60.7 years (77% of life) in ‘good’ general health, compared with 60.9 years (73%) for women.
These were drops of 1.8 years and 2.5 years, respectively, compared with 2019 to 2021.
Despite modest increases in life expectancy since 2019 to 2021, the latest data showed healthy life expectancy at birth in the UK, for both men and women, fell to its lowest level since the Office for National Statistics began recording the data in 2011 to 2013.
Not everyone in the UK gets the same healthy life expectancy. England continued to have the highest healthy life expectancy at birth for both men (60.9 years) and women (61.3 years); Scotland had the lowest for men (59.1 years compared to 59.4 for women) and Wales had the lowest for women (58.5 years compared to 59.2 for men).
In England, for both men and women, the South East remained the region with the highest healthy life expectancy at birth (63 and 64.3 years, respectively), and the North East remained the region with lowest (57 and 56.9 years, respectively). The North East has had the lowest healthy life expectancy at birth in every period since the ONS began collecting records.
How much could my state pension gap be?
Morrissey crunched the numbers on how much extra someone might need to save in order to cover the shortfall between getting too ill to work and beginning receiving the state pension.
In the examples, we take a 40 year old and a 50 year old, both earning £35,000 and contributing at auto enrolment minimums of 8% total (employee and employer contribution). Both have a current pension fund of £80,000.
If they both continued to contribute at this level then the 40 year old would have approximately £197,000 in their pension by the age of 61 (the average maximum healthy life age) . The 50 year old would have around £134,000.
In the case of the 40 year old, they have a state pension age of 68. So if they have to stop work at age 61 due to ill health, as the data suggested they might, this gives them a seven year shortfall.
If the state pension increases by 3% a year – taking account of the fact the triple lock means it rises by at least inflation each year – it would be worth £22,400 by the time they hit age 61 and it would keep increasing.
So they would need to account for approximately £172,000 of state pension payments over those seven years.
If they boosted their workplace pension contribution by about £515 per month (the employer stays the same) then they would have a pension pot worth £370,000 by the time they hit 61 so would cover the state pension shortfall.
The 50 year old has a six year gap, if they had to give up work at the average healthy life expectancy age of 61 as their state pension age is 67.
Morrissey estimated their shortfall would be approximately £108,000. To generate this amount they would need to boost their pension contribution by roughly £680 per month.
The big difference between the shortfalls comes from the rate of growth in the state pension over that time period.
Morrissey said: “The figures show the importance of topping up contributions wherever possible to make sure you can weather the income shock that poor health can bring.”
“Taking the opportunity to increase your pension contributions whenever you can – for instance when you get a pay rise or new job – can be a great way of boosting your pension relatively painlessly and help you make sure early ill health doesn’t derail your retirement plans.”
“You can draw an income from your self-invested personal pension (SIPP), personal or workplace pension from the age of 55 (going up to 57 in 2028) so this could really help bridge the gap during those years.”
