Proposed changes to the retirement age could see millions of people born in the 1970s and later having to work for longer to be able to access their state pension.
Reports from The Sun claim chancellor Jeremy Hunt could announce the state pension age is rising to 68 by the mid 2030s when he delivers his Budget announcement in March.
The retirement age is currently set to rise to 67 by 2028, and the next rise was not due until 2046. But that could be brought forward as the Treasury looks to raise revenue.
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Currently the state pension is worth £185.15 per week. It is due to increase by 10.1%, in line with inflation, to £203.85 from April.
“No decision has been taken on changes to the state pension age,” a Department for Work and Pensions (DWP) spokesperson said.
“The government is required by law to regularly review the state pension age and the second state pension age review is currently considering, based on a wide range of evidence including latest life expectancy data and two independent reports, whether the rules around state pension age remain appropriate.”
“Pushing back the state pension age would come as a kick in the teeth to workers who diligently paid into the welfare system under the assumption that the state pension age won’t move much – if at all,” says Myron Jobson, senior personal finance analyst at interactive investor.
“Shifting the state pension goal posts just a little bit could save the government billions in state pension payments and more money will end up in the taxman’s coffers in taxes on extra earnings,” Jobson continues.
“Workers would be forgiven in thinking that their state pension entitlement has been kicked around like political football.”
So, why is the government considering an increase in retirement age, and what does it mean for you?
What does an increase in the retirement age mean for you?
Under the current plans to raise the state pension between 2044 and 2046, anyone born from 6 April 1978 and onwards would receive their state pension aged 68.
If the increase is brought forward to between 2035 and 2037, anyone born from 6 April 1969 and onwards would receive their state pension aged 68.
But if the government brings the increase in retirement age forward more quickly, to between 2033 and 2035, anyone born from 6 April 1967 and onwards would have a state pension age of 68.
“Rishi Sunak will be playing with political fire if he decides to accelerate the planned increase in the state pension age to 68,” says Tom Selby, head of retirement policy at the investment platform AJ Bell.
“From the Treasury’s perspective, bringing forward the planned increase could be a huge money spinner, likely raising tens of billions in revenue - funds that are desperately needed in the wake of the pandemic and the costly energy support package,” Selby adds.
“The big question is whether No.10 agrees this exchequer boost is worth the inevitable pain at the ballot box… telling millions of people they will have to wait longer for their pension might prove the final nail in the coffin of the Conservatives’ hope of winning the next general election.”
It’s recommended people don’t rely solely on their state pension for retirement, as it likely won’t be enough to cover a comfortable retirement.
“Ultimately, people need to take responsibility for their own retirement and plan ahead, and taking professional advice or financial guidance earlier in life is a sensible step,” says Jon Greer, head of retirement policy at the wealth manager Quilter.
“An adviser can help project your income needs in retirement and explain how much you’d need to set aside now in order to be able to retire earlier than state pension age.”
“This situation lays bare the importance of private pension savings,” agrees Jobson. “Britons will have to do most of the heavy lifting to ensure a healthy income at retirement. Planning for retirement is difficult when the state pension regime is up in the air.”
Younger people in particular should prioritise saving so that they have more options near retirement age.
Building your own retirement pot is necessary to ensure you have the retirement you’re hoping for. Workplace and personal pensions, plus ISAs, are tax-efficient ways to save for the future when you stop working.
Why might the government increase the retirement age?
The state pension makes up the biggest component of all welfare spending by the government, at 42%. Pushing the state pension age up would save billions of pounds - a tempting prospect at a time when government borrowing is at a 30-year high - and this is something that will be considered in the state pension age review.
However, the review will also look at other factors, such as life expectancy.
“For decades, average life expectancy across the UK had been growing at a rapid rate,” says Selby.
The average life expectancy at birth was around 71 for men and 77 for women at the beginning of the 1980s. By 2019, this had jumped to 79 and 83 respectively.
“However, between 2018-20 average life expectancy for men dipped marginally, in part as a result of the pandemic,” says Selby.
“Expectations of future life expectancy increases have also plummeted. For example, back in 2014 the ONS thought that by 2028 – when the state pension age will rise to 67 – the average life expectancy for a 67-year-old man would be 21.1 years, while for a woman it was expected to be 23.1 years.
“However, the latest projections suggest that by 2028 the average life expectancy of a 67-year-old man will be 18.7 years, while for a 67-year-old woman it will be 20.8 years.”
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