Accelerating state pension age hikes could cost Brits in early 50s almost £18,000

Britons currently in their early 50s could miss out on almost £18,000 if the state pension age rise to 68 is accelerated by one year.

The state pension age will rise from 66 to 67 by April 2028, and then to 68 between 2044 and 2046, but these changes could potentially be brought forward as part of a newly announced state pension age review.

If the state pension age rise to 68 was sped up to between 2039 and 2041, it could mean a loss of one year’s full state pension payments, with those aged 51 to 53 being the first affected.

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Workers aged 51 would lose £16,436, while 52-year-olds would lose £16,114, according to calculations by wealth manager Rathbones. Those aged 53 would miss out on £15,798.

This is based on the full new state pension amount of £230.25 per week (£11,973 per year) and assumes the Bank of England’s target inflation rate of 2% per year.

If the triple lock (which guarantees the state pension rises by the highest out of inflation, average earnings or 2.5% each year) is factored in, the figures would rise to approximately £17,774 for 51-year-olds, £17,340 for 52-year-olds and £16,918 for 53-year-olds.

Rebecca Williams, divisional lead of financial planning at Rathbones, warned future generations seem likely to face a “less generous” state pension than today’s retirees as longevity increases and population pressures mount.

“The situation appears particularly precarious for those in their early 50s who face the real prospect of missing out,” she added.

“We’ve seen a number of people in their late 40s and early 50s come to us seeking greater clarity on their retirement prospects.

“With shifting goalposts in the pension landscape, many are understandably keen to ensure they’re on track to retire comfortably and on their own terms.”

Are state pension age increases likely to be accelerated?

The government launched a review into the state pension age last week, which will assess whether the current state pension age rules are appropriate, based on factors such as the latest life expectancy data.

However, the government doesn’t have to accept the recommendations.

The review will conclude in 2029. The previous independent state pension age review, published in 2023, reaffirmed a recommendation to give at least 10 years’ notice to individuals affected by state pension age changes.

Past reviews have advocated for bringing the increase to 68 forward, but this hasn’t been implemented by previous governments. This latest review could “eventually force the government’s hand”, Rachel Vahey, head of public policy at AJ Bell, said, due to the soaring cost of the state pension.

Spending on the state pension is currently around 5% of GDP (£138 billion) and is estimated to rise to 7.7% of GDP by the early 2070s, according to the Office for Budget Responsibility.

How to prepare for state pension age changes

The review into the state pension age underlines the importance of building a broad retirement plan, such as through workplace pensions and private savings and investments.

The full state pension amount is a far cry from the amount you need for a “comfortable” retirement, and won’t even be enough to cover a “minimum” standard of living in retirement, according to Pensions UK (formerly the Pensions and Lifetime Savings Association, or PLSA).

Vahey, from AJ Bell, urged people planning ahead not to panic, but emphasised how relying solely on the state pension in retirement is risky.

“The state pension, now worth close to £12,000 a year, is extremely valuable. If you’re forced to wait a year or two to claim it, you’ll either need to work longer or find tens of thousands of pounds extra from your pension and private savings to plug the gap,” she said, pointing out working later in life won’t be physically possible for everyone.

“While some people will be able to manage by leaning on other savings, downsizing to free up cash, or moving into another job, possibly part-time, as retirement approaches, the best way to give yourself freedom to retire on your own terms is to build up your private pension pot.

“The best way to boost your pension is to increase contributions, taking maximum advantage of any employer matching and tax relief on offer. Consolidating your private pension pots together will also help you get control of your money, potentially reduce fees to boost returns, and allow you to plan ahead.”
We look at whether the 8% pension saving rule is enough for a comfortable retirement in a separate piece.