State pension age could rise faster than expected – are you prepared?
The Office for Budget Responsibility suggests the state pension age may increase faster than expected. Here is what you need to know.
Millions of older workers could face a longer wait until they retire amid reports that changes to the state pension age could be brought forward.
Currently, the state pension age is due to rise to 68 from 2044 but a report from the Office for Budget Responsibility (OBR) suggests this could take place sooner.
It comes amid debate about the cost of the triple lock and a government backed review of the state pension age which is due to make recommendations on changes in the comings months.
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The OBR’s latest Fiscal Risks and Sustainability Report said state pension spending is projected to increase from 5% to 9% of GDP over the next 50 years.
It added that a policy assumption underpinning the state pension projection is around future changes to the state pension age.
In its baseline scenario, the OBR assumed that the state pension rises to 68 between 2037 and 2039 and then to 69 in the 2070s.
This is different to the current trajectory that suggests the state pension age will rise to 68 in 2044/45.
Keeping to the timetable would cost an average additional £6 billion in today’s terms in each of the years the state pension age rise is delayed.
The OBR said: “The Treasury has confirmed to us that this is the government’s current policy position, rather than the legislated increase set in the Pensions Act 2007.
“This is also consistent with the recommendation of the first state pension age review in 2017 that the legislated-for rise to 68 between 2044 and 2046 should be brought forward to the late 2030s, and the principle that 32% of adult life should be spent in retirement, both of which the government at the time committed to. However, the rise to 68 remains legislated to happen between 2044 and 2046, with no subsequent rises legislated for.”
If these changes are made, it is estimated that five million people aged between 49 and 55 would have to work for an additional year before being eligible for their state pension.
The Treasury has been asked for comment.
How to prepare for state pension age changes?
The funding and timing of the state pension seems to regularly be under review.
Much of the criticism around the state pension is the use of the triple lock calculation, which can lead to above-inflation rises and is costly for the Treasury.
Beyond scrapping the triple lock, an alternative is to make people wait longer by changing the state pension age.
The state pension age was always going to increase in the coming decades but may now be sooner than many expected to help boost the nation’s finances.
Nothing has been confirmed yet but a revised timetable does potentially mean working longer.
Catherine Foot, director of the Standard Life Centre for the Future of Retirement said: “The state pension remains a critical element of retirement incomes in the UK for millions of people, and the reports that state pension age increases could be accelerated are a reflection of the difficult balancing act government faces in keeping the system affordable while people live longer, and ensuring it remains fair and adequate for those who rely on it.”
But Adam Cole, retirement specialist at Quilter, suggest that rather than relying on the government, there are steps that people can take.
“Someone aged 49 could build a fund capable of replacing a year's projected state pension with contributions costing just over £50 a month after basic-rate tax relief. Even someone aged 55 could potentially achieve the same outcome for around £75 a month net,” he said.
"While no one welcomes changes to the goalposts, these examples highlight the power of starting early. Small, regular pension contributions, combined with tax relief and investment growth over time, can provide valuable flexibility and help reduce dependence on an increasingly stretched state pension system."
