Why getting sick will cost you £500 a month in pension savings

Pension savers may need to factor the cost of sickness into their retirement plans as the UK’s healthy life expectancy drops, in a sign you could have to give up work much earlier than state pension age.

Healthy life expectancy has dropped below 62 years for men and women in England, and to around 60 in Wales.

Given the state pension age is currently 66, 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 £150,000, 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 £93,000.

By acting early the shortfall could be made up by saving an extra £400 to £500 a month into a private or workplace pension to boost those retirement savings, the analysis showed.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “The state pension plays a hugely valuable role in our retirement planning and there are few people who can do without it.

“This causes extra issues for people who are unable to keep working until state pension as not only are they drawing from their pension early to make up for lost income they also need to account for the hole where the state pension would have been.”

How long will I live a healthy life?

In 2021 to 2023, the latest government data available, men in England could expect to spend 61.5 years of their lives in good health. This compared with 60.3 years in Wales.

For women, it was 61.9 years in England and 59.6 years in Wales.

This is down from an average healthy life expectancy of just below 63 years old for people in the UK the last time the Office for National Statistics (ONS) looked at the figures for 2020 to 2022.

Not everyone in the UK gets the same healthy life expectancy. In England the latest figures show at birth it was highest in Wokingham (69.7 years for men, 70.8 years for women); it was lowest in Blackpool for men (51.7 years), and in Barnsley for women (52.6 years).

In Wales, healthy life expectancy at birth was highest in Monmouthshire (65.9 years for both men and women) and lowest in Torfaen (54.9 years and 53.3 years, respectively).

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. 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 £203,000 in their pension by the age of 62. The 50 year old would have around £140,000.

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 62 due to ill health, as the data suggested they might, this gives them a six 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 £23,000 by the time they hit age 62 and it would keep increasing.

So they would need to account for approximately £148,000 of state pension payments over those six years.

If they boosted their workplace pension contribution by about £420 per month (the employer stays the same) then they would have a pension pot worth £355,000 by the time they hit 62 so would cover the state pension shortfall.

The 50 year old has a five year gap – if they had to give up work at the average healthy life expectancy age of 62 – as their state pension age is 67.

Morrissey estimated their shortfall would be approximately £93,000. To generate this amount they would need to boost their pension contribution by roughly £530 per month.

The big difference between the shortfalls comes from the rate of growth in the state pension over that time period. Given the current full state pension is £11,973, it’s got 22 years worth of growth until the 40 year old hits 62.

If it grew at 3% per year it would be around £23,000 by the time they hit 62 – whereas it would be just over £17,000 by the time the 50 year old got there.

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.”