Will it really have any relevance when the concept of retirement has become so fluid? When more than one in 10 people over the age of 65 are registered by the Office for National Statistics as employed?
The answer is that we should all care about the state pension age increasing, some more than others, including those people who have personal pension arrangements.
From December 2018, the state pension age is scheduled to increase for both men and women, until it reaches 66 by October 2020. It is also planned to rise from 66 to 67 between 2026 and 2028.
In addition, in July 2017 the Department for Work and Pensions said in the State Pension Age Review: “The government intends to increase the state pension age from 67 to 68 in 2037 to 2039, bringing it forward by seven years from its current legislated date of 2044 to 2046.”
Although there has been some pushback about the state pension age rising, it is worth remembering that when it was introduced in 1948, a 65-year-old was only expected to live a further 13.5 years, or 23 per cent, of their adult life. By 2007 this had risen to around 21 years, or 32 per cent of their adult life.
Key points
• The state pension age is rising next year
• The higher state pension age disadvantages certain areas of the country
• Poorer workers will be more disadvantaged by the rise in the SPA
Responsibility and parity
The change in the state pension age is designed to ensure “fairness” for all generations by linking it to life expectancy, so that all generations spend the same proportion of their lives over the state pension age.
According to the DWP, increasing the SPA is also “the responsible course of action”. The cost of the state pension is rising due to the ageing population, and there is a desire to manage the increase. Raising the state pension age will save £74bn by 2045 to 2046 when compared with current plans.
So raising the age at which individuals can claim the state pension is about inter-generational “fairness” and “responsibility”, but how will it affect those who are due to retire in the next 10 to 20 years?
In short, it will impact everyone. But the degree to which it will impact individuals varies for different groups of people.
The Trades Union Congress has pointed out the higher state pension age disadvantages certain areas of the country. Responding to the government announcement about a speeded-up timetable for raising the state pension age to 68, TUC general secretary Frances O’Grady says: “Hiking the state pension age risks creating second-class citizens. In large parts of the country, the state pension age will be higher than healthy life expectancy.”
Olivia Treharne, global equities fund manager at Legal & General Investment Management, says: “Life expectancy tended to be longer for the affluent: in the UK at 65, life expectancy is 23 years for men with high incomes, normal health and healthy lifestyles, but just 12 years for men with low incomes, ill health and unhealthy lifestyles.”
This means poorer workers will be more adversely affected by the increase in the pension age as they pay in for the same length of time (possibly for longer as they may have started work earlier), but will receive less benefit as they are likely to die earlier.
Gender imbalance
Since 2010, the women’s state pension age of 60 has been steadily increased by the government in order to match the men’s state pension age of 65. Researchers at the Institute for Fiscal Studies found that, as a result, more than 1m women in their early 60s have become poorer.
According to the study, the household income of women aged between 60 and 62 is now, on average, £32 a week lower than it was before the state pension age began to rise in 2010. Women Against State Pension Inequality (Waspi) was established to represent the rights of women bornin the 1950s who feel particularly hard done by asa result of the increase.
They support the equalisation of the state pension age between genders, but are angry at the rise in poverty among women between 60 and the state pension age; and at the minimal notice many had informing them of these changes, which meant they had too short a period in which to change their retirement plans.
Women are generally worse off in pension terms as they are more likely to stop working or to work part-time to have children, care for children, care for elderly parents, or care for grandchildren so their own children can work.
Therefore, women are likely to have fewer private pension savings, less saved in a workplace pension, and less personal wealth, so are likely to be more reliant on the state pension, which they will now have to wait longer to receive. They are also less likely to have the maximum qualifying years for the full state pension.
On average, women are likely to live longer than men, so the gender imbalance tilts in their favour in this respect.
Knock-on effects
As the state pension age increases, many people will need to work for longer. This is not necessarily easy as it can be difficult for people to find work in their older years from both a health and employment opportunities perspective, particularly for blue collar jobs.
The government is aware of the problems here and has looked at ways of supporting people who want (or need) to have longer working lives, including the abolition of the statutory default retirement age to ensure people cannot be required to leave their jobs purely on grounds of age.
It is clear that the greatest impact of the increased state pension age will be felt by poorer workers, by women, by people in locations with low healthy life expectancies, and generally by those solely – or predominantly – reliant on the state pension.
There will also be an impact on some of the people who use advisers. For people who have their own pension, their adviser will have created plans that include the state pension kicking in at some point.
If this point is delayed, they have to make up a deficit in the region of £8,000 a year until they qualify for the state pension (assuming they still intend to stop work at the same time).
This will reduce the sustainable income rate someone can afford unless this deficit is filled. An individual’s retirement plan may also be impacted by the government’s proposal to increase the age at which one can normally start to take money from a pension pot, from 55 to 57, by 2028. There is talk of setting this age at 10 years below the state pension age on an ongoing basis.
The deferral of the state pension and, potentially, a private pension, will create a hole in retirement plans for those who would like to start drawing their money early. It could mean people are more likely to look into alternative sources of income if they still want to retire early.
Or they are more likely to phase their retirement as they may not be able to afford to give up work completely, but equally not want to delay their retirement.
Colette Dunn is head of strategy and Marie-Lise Tassoni is a consultant at Milliman
