Rumoured proposals to raise the UK state pension age to 68 could throw millions of people’s retirement plans into jeopardy.
How would you feel about having to work longer before claiming your state pension? I’m guessing less than enthusiastic.
However, if rumours circulating this week turn out to be true, that’s the situation some of you will find yourselves in.
And given the state pension is a valuable source of income in later life, you might be concerned about how such a change would impact your retirement plans.
Here we make sense of what’s going on.
On Monday evening, The Sun newspaper published an article claiming the government is planning to raise the state pension age (SPA) to 68 by the mid-2030s – years sooner than planned. The SPA is the earliest age that you can claim your state pension.
The current SPA is 66, rising to 67 between 2026 and 2028, and currently scheduled to increase to age 68 between 2044 and 2046. There is, however, some ambiguity here.
The Cridland review in 2017 proposed bringing the timetable for age 68 forward to 2037. But though the government accepted the recommendation, the changes are yet to be confirmed.
But according to The Sun, the rise could arrive as early 2035, almost a decade earlier than previously planned.
Raising the SPA has been a hot topic of discussion for several decades. In 2020, the Centre for Social Justice (CSJ) took a particularly aggressive stance. It proposed increasing the SPA to 70 by 2028 and to 75 by 2035.
“The ageing population and the increasing Old Age Dependency Ratio is raising serious concerns about long term fiscal sustainability in the UK. If we expect [the state pension] to continue in the future along with the full functioning of public services … the UK’s fiscal balance must be corrected,”
the CSJ said.
While the government will avoid taking such a heavy-handed approach, it would be naïve to rule out the SPA increasing to 70 in the future. Successive governments have considered the state pension low-hanging fruit when seeking to boost their coffers.
What’s the reasoning behind it?
In short, it’s a way for the government to raise cash. The state pension is expensive to fund, and increasing the SPA earlier than planned could pocket the Treasury £9bn, according to consultancy LCP.
In November, the Institute for Fiscal Studies identified a £60bn black hole in public finances. Jeremy Hunt’s autumn statement unveiled a package of tax rises and spending cuts to address the problem. But this might be just the start.
As the CSJ noted in its 2020 report, people living longer is another aspect, with the government under pressure to balance the books with fewer people working and more retired.
However, life expectancy increases have slowed in recent years - even declining in some parts of the UK - raising questions about whether planned SPA increases are necessary.
Who would this affect?
Anyone born before 5 April 1968 would be unaffected by the change. Their SPA would remain at 67.
Meanwhile, those born between 6 April 1968 to 5 April 1969 would have an SPA of somewhere between 67 and 68. And so the SPA for people born 6 April 1969 onwards would revert to 68.
So, if you’re aged 54 years or younger today, you could be affected. Some would feel the impact more than others, namely those on the lowest incomes who expect to rely more heavily on the state pension.
While requiring you wait an extra year before pocketing your state pension may not seem a big deal, millions would be forced rethink their retirement plans.
With the current full state pension £9,627.80 a year, and set to rise to 10,600 from April, anyone wanting to retire at 67 on their current target income, would need to plug the shortfall in their personal retirement savings.
Health is another consideration. Life expectancy is 81 in the UK, but healthy life expectancy - the average number of years you can expect to live in good health - is 63 for men and 64 for women. Working for longer may not be an option for some people.
What are the odds of it happening?
Well, although the government has remained shtum on the matter so far, the state pension has undergone several changes in the past couple of decades, most of these proving unpopular.
For that reason, the rumours must be taken seriously.
The government suspended the earnings element of the triple lock for the current tax year with wage rises skewed during the pandemic. This meant the state pension rose 3.1 per cent, whereas honouring the triple lock would've delivered an 8.1 per cent increase.
The triple lock is returning on 6 April, with pensioners set to receive a welcome boost in the fight against the rising cost of living. But its future remains on shaky ground.
Unquestionably the most contentious change was the decision to equalise the SPA for men and women – a move that ended up in the courts.
Campaign group Women Against State Pension Inequality (WASPI) didn't disagree with the changes, but said they “were implemented with inadequate or no notice.” Millions of women had to wait a further six years to claim their state pension, with some losing out on as much as £40,000. WASPI lost its battle in the high court in 2019, but continues to fight its cause.
When will we know more?
It’s difficult to say. The government’s next big fiscal event is the Spring Budget, due to take place on 15 March. We might learn more then. But given a decision to bring forward the SPA is likely to receive some backlash, not only from the public but also fellow MPs, Hunt may opt to give himself more time.
In the meantime, whether you are decades from retirement or only a few years away, the best approach is to focus on things within your control. That’s because the choices you make with your personal savings will have the greatest impact on your retirement lifestyle.
We know that pensions can be difficult to make sense of. And we’re here to help.
By seeking regulated financial advice, you can ensure your retirement plans remain on track regardless of what age you receive the state pension.