The government has confirmed that it will not increase the state pension age from 67 to 68 any sooner than currently planned.
Last week, FTAdviser's sister publication, The Financial Times revealed that ministers had delayed plans to raise the state pension age to 68 amid falling life expectancy in the UK.
The state pension age, currently 66, is due to increase to 68 after 2044 however reports earlier this year suggested the government wanted to bring this forward to between 2037 and 2039.
However, in its state pension age review published today (March 30), the government confirmed that no change will be made to the legislated timetable, meaning that pension age is currently still set to rise to 67 by 2028 and 68 by 2046.
Becky O’Connor, director of public affairs at PensionBee, said: “Announcing a more imminent increase to the state pension age could have risked a strong backlash.
“The Secretary of State for Work and Pensions said that the current planned rise from 67 to 68 by 2046 ‘remains appropriate’, however the government left the door open for a further review.
“Given the cost of living crisis and slowing of life expectancy; at a time when more older workers are giving up work early because of poor health and when it feels harder than ever to save for oneself for retirement, moving the state pension goalposts now would be a difficult sell.”
O’Connor added: “In reality, it will still be a hot potato for the next government in a few years’ time.”
Likewise, Nigel Peaple, director of policy & advocacy at the Pensions and Lifetime Savings Association, said it is a “very positive step for future pensioners” as most people will rely heavily on the state pension to make up the majority of their retirement income.
In its review, the government said it plans to have a further review within two years of the next parliament to consider the rise to age 68.
The government was also recommended by Baroness Neville-Rolfe, who carried out a report on wider factors relevant to setting state pension age, to explore the possibility of an early access scheme whereby workers who meet certain qualifying criteria can access their state pension early at a reduced rate.
10-year notice
The government said it was committed to give 10 years notice of any changes to the state pension age and enabling people to plan for retirement with certainty.
Keeping to the ‘10-year notice’ rule means that a review in 2026 could in principle still recommend changes as soon as 2036.
It cited the level of uncertainty around life expectancy, the labour market and public finances as the reasons for deferring a decision to the next parliament.
O’Connor said: “This is reassuring, although many will say that 10 years is still not enough time to adjust if you’ve worked for many decades with an expectation of when you would be able to retire.
“These are good reasons to delay a decision on pushing a vital benefit further out of reach. But given the pressures on the government to make the state pension more affordable and sustainable, younger workers should probably err on the side of caution and assume that the SPA will be higher rather than the same by the time they start to reach retirement age.”
O’Connor said life expectancy data is expected to show signs of recovery and when it does, this would be “the peg the government would need” to get an increase back on the table.
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.
“The state pension age is already due to increase from 66 to 67 by 2028 but there had been speculation that it would rise to 68 a number of years earlier than the planned 2043.
“While people don’t need to wait until state pension age to access their workplace or private pension, it does remain an important part of retirement income for millions.”
Cameron argued that state pensions are not paid out of some huge fund built up over the years but on a ‘pay as you go’ basis from the National Insurance contributions of today’s workers.
“Historic trends have shown people are living on average longer, which means with an unchanged state pension ‘starting’ age, the state pension is paid for longer, adding to the costs,” he said.
“Over the last 10 years, the state pension triple lock has also led to state pensions rising faster than inflation. The higher the weekly pension amount and the longer it’s paid on average increase the funding pressures on those of working age.”
Sting in the tail
The government published two supporting reports – the independent review by Baroness Neville Rolfe and the Government’s Actuary’s report.
It also announced that there would be a fresh review two years into the new parliament (2026) which will take account of the 2021 census data and clearer information on the impact of the pandemic on long-term life expectancy.
Steve Webb, partner at LCP, said it was welcome that the government has taken account of the slowdown in life expectancies in recent years and has held off any further increases in state pension ages for now.
“But there is a sting in the tail in the analysis which the government has published today,” he said.
“If it adopts the idea of placing a cap on the share of national income spent on pensions, this would mean a rapid increase in pension ages, including a rise to 69 before the end of the 2040s.
“This would be a draconian shift in policy which would be likely to mean today’s younger workers facing a pension age of 70 or above."
At an evidence session on the state pension age review last month, John Cridland, first independent reviewer of the SPA (2016-17) said a cultural change in the world of work had a big part to play in pensions.
sonia.rach@ft.com
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