Updated 03 September 2020
THE State pension was introduced a century ago when a quarter of working people died before they reached retirement and those who did drew it for an average of just five years.
Today we’re all living much longer, so it’s not surprising that the State pension age is set to rocket.
The State pension age for women was already poised to increase from 60 to 65, bringing it in line with that of men. This process will be accelerated, so rather than taking four years for women’s pension age to rise from 63 to 65 (which originally was going to happen between 2016 and 2020) it will now happen over two years (between 2016 and 2018).
Both men and women will then see their State pension age rise gradually from 65 to 66 between 2018 and 2020, six years earlier than previously planned.
The increase to 66 will save around £30 billion through a reduction in spending on State pensions and pensioner benefits, while raising around £13bn through increased income tax receipts and National Insurance contributions.
In his Autumn Statement, in November 2011, the Chancellor announced that the State pension age will now increase to 67 between 2026 and 2028 (previously between 2034 and 2036). It is also thought that the State pension age will rise to 68 between 2036 and 2038 (previously between 2044 and 2046).
Clearly, anyone due to retire after these dates will be affected. However, those aged between 50 and 57 most so – and women at the older end of this scale will be particularly badly hit.
The biggest losers are women born around 1954. Women born on 6 April 1954 could previously have expected to receive their state pension just after their 64th birthday. Now they have to wait until they are 66. A woman born a year and a day earlier, on 5 April 1953 will still get her state pension before she turns 63.
These changes could also have a knock-on effect on many company pension schemes. They might also alter the age at which members can draw benefits, though such changes might only apply to pensions promised in future, not benefits accrued to date.
What can you do?
Those affected might either have to fall back on alternative savings or continue to work for longer. Money stashed away in individual savings accounts could be drawn upon, for example, or if you have private pension arrangements, you could delay taking an income from these.
A man aged 45 who saves £400 a month could increase his private pension income by nearly 15% if he put back retirement by one year. A woman aged 55 would need to save an extra £40 a month (or £475 a year) for 10 years to replace one year’s lost State pension. A 50-year-old would not have to save quite so much, needing to put aside just an extra £25 a month (£304 a year). These figures assume investment growth of 6% and inflation of 2.5%.
Members of defined contribution pension schemes might have to change their investment strategy to reflect a later retirement date. Take action today and don’t let the government make the call on your retirement!