The government has shelved plans to increase the state pension age to age 68 in the 2030s due to falling life expectancy in the UK.
Currently, the state pension age is 66, due to go up to 67 by 2028 and 68 by 2046. It was reported earlier this year that the increase to 68 would be brought forward to as soon as 2035, but these plans have been put on hold.
The increase was expected to be confirmed when the next state pension age review was published on 7 May.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
But Work and Pensions Secretary Mel Stride said another review will take place in two years - meaning a decision will not be made until after the next election.
“It’s essential the State Pension remains sustainable and fair across the generations. Our balanced approach will help achieve this and ensure we continue to provide security and dignity in retirement for millions of people across the country,” he said.
Commenting on the delay, Steven Cameron, pensions director at Aegon, said: “Millions will be able to plan their retirement with greater certainty now the government has confirmed it will not at this stage be accelerating planned increases in the state pension age.
“This will come as a relief to many nearer retirement who may simply feel unable to work into their late 60s.”
Why is the state pension age increase delayed?
The state pension age is still due to rise to 67 by the end of 2028, but the delay to further rises is, according to experts, likely to be a political move to get voters on side.
The Tories understandably look determined to try and claw back some public favour amongst its core voters by delaying its widely anticipated state pension age increase. Any increase would have proven incredibly unpopular and we may see more of these crowd pleasing policies as we head towards the general election Jon Greer, head of retirement policy at Quilter, said.
“The plan to delay has been reportedly due to average lower life expectancy. However, it is forecast that the number of people over State Pension age will grow significantly over the next 20 years whilst the proportion of the working age population to support them will start to fall.
“The delay to increasing the age therefore does put the state pension’s long term sustainability into the spotlight and this could be the government simply kicking an inevitability down the road for the next party to take government to deal with.
“Overall the Government aspire to aim for ‘up to 32%’ in the long run as the right proportion of adult life to spend in receipt of the State Pension. As a compromise if they choose not to raise the age then it does not leave the Government with many levers it can pull,” he added.
The Financial Times reported some government officials were concerned about people having to work for longer given that the chancellor just relaxed the tax rules on pensions, scrapping the maximum amount workers can save into their pension without being taxed.
“Going into a plebiscite telling voters they are living less than previously thought and yet will have to wait longer for their state pension would have been a challenging sell on the doorstep to say the least,” adds Tom Selby, head of retirement policy at AJ Bell.
In a statement, the DWP said the delay gives the Government time to take into account “evidence which is not yet available” on the long-term impact of recent challenges, including the Covid pandemic and global inflationary pressures.
“These events bring a level of uncertainty in relation to the current data on life expectancy, labour markets and the public finances,” it stated.
What is the average life expectancy?
Average life expectancy in the UK grew from 71 for men and 77 for women in the 1980s to a record 79 for men and 83 for women by 2018-19.
But average life expectancy for men dipped between 2018 and 2020, partly due to the pandemic.
Expectations of future life expectancy have also fallen. “For example, back in 2014 the Office for National statistics 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,” says Selby.
“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.”
The life expectancy divide
The government claims it has tried to create a simple state pension system that allows savers relying on the state pension to plan for retirement.
But this approach fails to take into account the stark differences in life expectancy across the country, experts argue.
“For example, official data suggests men living in the most deprived areas of the country live almost 10 years fewer than men living in the most prosperous areas,” says Selby.
“For women, the difference is almost eight years – and both sexes have experienced ‘significant increases’ in the inequality of life expectancy at birth since 2015-17.”
“The gaps in healthy life expectancy are even more staggering, standing at around 19 years for both men and women,” adds Selby.
What does this mean for the state pension going forward?
The delay is good news for future pensioners who rely on the state pension for a large part of their income.
But, you should not rely solely on your state pension for retirement, as it likely won’t be enough to cover a comfortable retirement.
There are also several changes coming to the state pension in April. For one, those receiving the new state pension will get a 10.1% rise in their payment thanks to the return of the triple-lock, which will see the payment increase in line with inflation.
The full new state pension is currently worth £185.15 a week, and this will rise to £203.85 on 6 April, the biggest-ever increase to the state pension.
“The decision on the State Pension age is an important one that could have a telling impact on quality of life at retirement,” says Myron Jobson, senior personal finance analyst at interactive investor.
“Bringing forward the State Pension age increase to 68 by 2046 to 68 by 2034 could mean a year of lost full state pension payment of £13,594 for workers aged 57, rising to £16,902 for workers aged 46.
“Scrapping the plan to bring the rise in the State Pension age forward essentially offers those approaching age 67 by the end of the decade up to a year’s worth of State Pension extra.”
“The elephant in the room is whether future governments will be able to maintain the benefits afforded to pensioners today – or some semblance of them at the very least,” continues Jobson.
“The success of the pension regime depends on certainty and predictability. If the pension goalposts are constantly shifting, people won’t have confidence – unless the goalposts shift in their favour as could be the case here.”
What is becoming increasingly clear is that workers will have to be the ones in charge of ensuring a comfortable retirement.
“If you accept the principle that we are likely to spend a third of our adult life in retirement, you can at least get an idea of how much money you’d need for a comfortable retirement,” says Jobson. “Even a small regular contribution makes a big difference to your retirement and the magic of compound interest is likely the most significant benefit of investing early.”
Additional contributions from Tom Higgins
Nic studied for a BA in journalism at Cardiff University, and has an MA in magazine journalism from City University. She joined MoneyWeek in 2019.
Zoopla: Asking price discounts hit a five-year high – is now the time to buy a property?
News Zoopla’s October House Price Index shows sellers are accepting discounts of 5.5% on average to secure a sale – we reveal where homeowners are taking the biggest asking price cuts
By Marc Shoffman Published
Equity release rates drop – is it worth unlocking cash from your home?
News Lifetime mortgage rates are falling from their record highs - is equity release worth another look?
By Marc Shoffman Published
NatWest-owned Ulster bank boosts easy access savings rate to 5.2%
Rates on easy access savings accounts have hit over 5%, with Ulster Bank now giving savers the chance to earn 5.2% on their cash savings. We have all the details.
By Marc Shoffman Published
Moneybox raises market-leading cash ISA to 5%
Savings and investing app MoneyBox has boosted the rate on its cash ISA again, hiking it from 4.75% to 5% making it one of top rates. We have all the details.
By Ruth Emery Published
October NS&I Premium Bonds winners - check now to see what you won
NS&I Premium Bonds holders can check now to see if they have won a prize this month. We explain how to check your premium bonds
By Kalpana Fitzpatrick Published
October’s NS&I Premium Bond winners revealed - have you scooped £1 million?
Two lucky NS&I Premium Bond winners are now millionaires this October. Find out here you are one of them
By Kalpana Fitzpatrick Published
The best packaged bank accounts
Advice Packaged bank accounts can offer great value with useful additional perks – but get it wrong and you could be out of pocket
By Tom Higgins Published
Energy bills to fall 7% under new price cap
Energy bills could fall by an average 7% from October under the new Energy Price cap announced today. We explain what the new cap mean for you and when it will come into play
By Pedro Gonçalves Published
Bank of Baroda closes doors to UK retail banking
After almost 70 years of operating in the UK, one of India’s largest bank is shutting up shop in the UK retail banking market. We explain everything you need to know if you have savings or a current account with Bank of Baroda
By Vaishali Varu Published
The best options to earn cashback on spending
From credit cards and current accounts to cashback websites, there are plenty of ways to earn cashback on the money you spend.
By John Fitzsimons Published