State Pension  

IMF warns of more state pension age increases

IMF warns of more state pension age increases

The International Monetary Fund (IMF) has warned the UK state pension age may have to increase more than already planned.

In the UK 2018 Article IV Consultation report, published last week, the fund said the strain on public finances related to the aging of the population will mean making "difficult social choices".

The IMF quoted figures from the UK's own Office for Budget Responsibility (OBR), which estimated public spending on health care and pension benefits would increase by a cumulative 4 percentage points of GDP between 2023 and 2043.

"Either taxes and fees will have to increase, or health services and pension payments will be affected," the IMF warned.

It explained more increases in the state pension age - beyond those already planned – may be needed as life expectancy continued to increase.

The state pension age has been set at 65 for men since 1925, and was equalised for women earlier this month.

From December 6, 2018 the state pension age will gradually increase for both men and women to 66 over the next two years. It will increase again to 67 starting in 2028.

Nevertheless, the IMF said increasing the state pension age shouldn’t be the sole means of adjustment because this "may disproportionately affect groups with lower-than-average life expectancy".

The IMF reiterated its position that the triple lock on pensions - which guarantees an annual increase in the state basic pension payment equal to the highest of 2.5 percent, consumer prices index inflation, or the rise in average earnings – should be scrapped.

It argued this was an "unsustainable method of indexation, poorly targeted to those most in need, and not in line with international best practices" and recommended simply indexing the payment to inflation instead.

This year the state pension increased in line with consumer price inflation, which hit 3 per cent in September.

In its manifesto for last year’s snap election, the Conservative party proposed scrapping the 2.5 per cent lower limit after 2020.

But after the election results the government was forced to abandon this idea to secure parliamentary support from Northern Ireland’s Democratic Unionist Party, which had supported the triple lock, in a move that disappointed the pensions industry.

The IMF also noted that means testing of access to social benefits in old age could also help control pension spending, "while safeguarding the most vulnerable and mitigating income inequality".