Under current plans, the state pension age will rise from 66 to 67 by 2028, and then to 68 between 2044 and 2046. The full flat-rate state pension is worth £185.15 per week in 2022/23 and is set to rise by 10.1% to £203.85 per week in April. Government review of the state pension age expected to be published in early 2023. AJ Bell analyses the implications of different state pension age hike timetables |
Tom Selby, Head of Retirement Policy at AJ Bell, comments: “Rishi Sunak will be playing with political fire if he decides to accelerate the planned increase in the state pension age to 68. The latest official data suggests average life expectancy improvements – the main justification for state pension age increases - have gone into reverse since the pandemic. “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. The big question is whether No.10 agrees this Exchequer boost is worth the inevitable pain at the ballot box. “Even if the Treasury makes the argument this shift is necessary to steady the nation’s finances and ensure the state pension remains sustainable over the long-term, telling millions of people they will have to wait longer for their pension might prove the final nail in the coffin of the Conservatives’ hopes of winning the next general election. “For savers, this is another reminder that while the state pension provides a valuable foundation upon which to build your retirement plans, both how much you receive and when you receive it remains at the whim of politicians. “This is one of the reasons it is vital you build your own retirement pot, taking advantage of the retirement savings incentives on offer, any employer contributions available and tax-free investment growth.”
What is the current plan for increasing the state pension age to 68?
The timetable for increasing the state pension age to 67 by 2028 is not expected to be affected by the Government’s review. The Government has also previously said it will give 10 years’ notice of any changes to the state pension age. On this basis, the earliest any increase in the state pension age beyond 67 could be brought in is 2033.
The state pension age is legislated to rise to 68 between 2044 and 2046. This means:
Anyone born on or before 5 April 1977 will have a state pension age of 67
Anyone born from 6 April 1977 to 5 April 1978 will have a state pension age between 67 and 68 Anyone born from 6 April 1978 onwards will have a state pension age of 68
Who could an accelerated rise to age 68 affect?
The impact of an accelerated state pension age increase to 68 would depend on the timing of that rise.
If the increase to 68 is brought forward by seven years to 2037-39 – a proposal previously set out by the Government in 2017 – this could mean:
Anyone born on or before 5 April 1970 would have a state pension age of 67
Anyone born from 6 April 1970 – 5 April 1971 would have a state pension age between 67 and 68 Anyone born from 6 April 1971 onwards would have a state pension age of 68
If the increase to 68 is brought forward to 2035-37, this could mean:
Anyone born on or before 5 April 1968 would have a state pension age of 67
Anyone born from 6 April 1968 to 5 April 1969 would have a state pension age between 67 and 68 Anyone born from 6 April 1969 onwards would have a state pension age of 68
If the Government goes for the nuclear option and the increase to 68 is brought forward to 2033-35, this could mean:
Anyone born on or before 5 April 1966 would have a state pension age of 67
Anyone born from 6 April 1966 to 5 April 1967 would have a state pension age between 67 and 68 Anyone born from 6 April 1967 onwards would have a state pension age of 68
What does the latest life expectancy data tell us?
“For decades, average life expectancy across the UK had been growing at a rapid rate. At the beginning of the 1980s, average life expectancy at birth was around 71 for men and 77 for women.
“By 2017-19, average life expectancy had reached a record high of 79 for men and 83 for women. However, between 2018-20 average life expectancy for men dipped marginally, in part as a result of the pandemic. “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.”
The great life expectancy divide
“The DWP’s state pension age review will not just look at averages – it will also consider life expectancy trends ‘in every part of the UK’.
“One of the major challenges when designing state pension policy is balancing simplicity with fairness. The flat-rate state pension introduced in 2016 aims to simplify the benefit people receive over the long-term, while the state pension age remains universal. “As such, the Government has very much gone for simplicity over fairness, with the aim of creating a state pension system which savers can understand and use as a foundation for their retirement plans. “The downside of this approach is it does not take account of the yawning differences in life expectancy that exist in the UK. “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 least deprived areas. 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. “There are ways this could be addressed, but each comes with significant challenges. Means-testing could make the system fairer but would add unwelcome complexity, not to mention administrative cost. “Allowing earlier access to the state pension, potentially at a reduced rate, would at least allow those who may have limited life expectancy to access some of their state benefit sooner. “However, one of the dangers here would be that people might end up short on cash, particularly in their later years, if any private pensions run out and they’re left with only that lower state pension income. From the Treasury’s perspective it could also present short-term cashflow challenges. “Another idea that has been floated would see people entitled to access the full state pension after reaching a certain number of years’ National Insurance contributions. The thinking here is that those who are more likely to start work when they are young are, on balance, more likely to have manual jobs they may struggle continue with when they are older. “Some of these ideas have merit, but none are perfect and each would make messaging around the state pension more complicated. They also entail a major overhaul of the state pension system, which would inevitably be controversial.” |
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