Pensions  

Advisers break state pension news to clients in their 40s

Advisers break state pension news to clients in their 40s

The war between the generations is set to take a new twist as baby boomers enjoy a state pension protected by the triple lock at 65 while under 40s will not only have to pay for their elders' pensions but will not receive their state pension until the age of 68.

On 19 July the government accepted the recommendation in the Cridland Review that the state pension age increase should be brought forward to 68 between 2037 and 2039.

Under the current law, the state pension age is due to increase to 68 between 2044 and 2046.

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The hike in the state pension age announced in the House of Commons by secretary of state for work and pensions David Gauke, came the day after a report from Sir Michael Marmot, a former government adviser and now director of the Institute of Health Equity at University College London, which showed a century’s rise in life expectancy has almost stalled.

Steve Carlson, financial planner at Cardiff-based Carlson Wealth Management, said if the recent improvements in mortality rates continue to plateau, increasing the state pension age means the next generation of pensioners will be in receipt of a state pension for fewer years than those are currently reaching state pension age.

"Bringing forward that increase exacerbates the problem," he said.

"The current system is unaffordable and although a fairer method of balancing the books would be to drop the triple lock, that would be political suicide as the grey vote is far too important.”

For the under 40s who still wish to retire at 67, IFA Scott Gallacher of Leicester’s Rowley Turton  advises that they will “need to save around an extra £20 per month”.

"The decision knocks people's confidence in the state pension system with some believing that the state pension won't be there for them.

“While this should make them more self- reliant, in reality many just give up on pensions entirely as the cost is so huge," he said.

Mr Gallacher will be identifying all of his affected clients and contacting them shortly to ensure that they are fully aware of the change.

Referring to the campaign by some women born in the 1950s who are fighting changes to women's state pension age to bring it in line with men's, know as Women Against State Pension Inequality, he forecast: “It probably closes the door completely on the Waspi claims as it would be difficult to justify one group retiring at 68 funding another's group's retirement at 60."

He added: “Hopefully, the lessons of Waspi will be learnt in terms of letters to the affected people being a sensible precaution against future 'I didn't know' claims."

Tom Selby, senior policy analyst at A J Bell, said the government announcement emphasised the importance of taking responsibility for your own retirement.

"Whether we like it or not, the state can and will move the goalposts, so there is absolutely no guarantee of either how much you will get or when you will get it.

"For some an extra year in work might not be a problem - indeed many will relish the opportunity to keep active as they get older. But for others, particularly people in physically demanding jobs, this will be a bitter pill to swallow.