The pension age is set to hit 68 within 20 years as the government sets out a new timetable for retirement dates with those in their early forties likely to be hard hit
The Department for Work and Pensions has published a review into the state pension age, proposing a new timetable for a rise to a state pension age of 68 years in 2037-39, seven years early than current plans, although legislation is unlikely to be introduced before the next state pension review which is due by July 2023.
The change will affect everyone born between 6 April 1970 and 5 April 1978.
The revised date of 2037 for retirement at 68 would see the retirement age kicking in years earlier than originally anticipated, although it would be introduced over a two-year transition period. Extending the date by one year would save the government up to £8bn a year.
By 2030 only 80% of those reaching state pension age will be entitled to the full rate of the new state pension. This highlights the government’s need to push auto enrolment pensions to ensure that as many people as possible can have a dignified retirement.
The government will carry out a further review before legislating to bring forward the retirement age to 68, to enable consideration of the latest life expectancy projections, and it also will review long-term carers’ ability to take leave with a view to setting out recommendations on how to support this vulnerable part of the community.
The Cridland report stressed that changes to the state pension age timetable must form part of a wider system that supports people in employment or self-employment, while also supporting those whose work prospects are limited or curtailed by disability, health conditions, or caring responsibilities.
Latest projections from the Office for National Statistics show that the number of people over state pension age in the UK is expected to grow by a third between 2017 and 2042, from 12.4m in 2017 to 16.9m in 2042.
Under the proposed new timetable, the state pension age will increase to 68 between 2037 and 2039, earlier than the current legislation which sees a rise between 2044 and 2046.
No one born on or before 5 April 1970 will see a change to their current proposed state pension age.
When the modern state pension was introduced in 1948, a 65-year-old could expect to spend 13.5 years in receipt of it – 23% of their adult life. This has been increasing ever since. In 2017, a 65-year-old can now expect to live for another 22.8 years, or 33.6% of their adult life.
The UK currently spends 5.2% of GDP on the state pension. Without any rises in the state pension age this is set to rise to 6.5% by 2039/40. The government’s proposed timetable reduces this to 6.1% of GDP by 2039/40.
Keeping the state pension age at 66 would cost over £250bn more than the government’s preferred timetable by 2045/46.
Tim Middleton, technical consultant at The Pensions Management Institute, said: ‘This move was not entirely surprising but it came earlier than expected, possibly triggered by the need to maintain the triple lock due to political considerations which have created greater financial strain than had been anticipated.
‘This will come as a great disappointment to campaigners seeking to improve state pensions such as the Waspi group. Meanwhile, defined contribution members whose portfolio assumes the old state pension age may need to amend their investment strategy.
‘Defined benefit pension schemes may need to rewrite their rules once again to allow for the amended state pensions age.’
The announcement is in line with the proposals set out by John Cridland CBE in March 2017, which proposed bringing forward the increase in state pension age to 68 between 2037 and 2039.
A separate report from the government actuary’s department in March 2017 considered two alternative scenarios for the state pension age, under the government’s principle that an individual should spend on average up to one third of their adult life above state pension age.
This is the first government review of state pension since the Pensions Act 2014 which stipulates a review every six years. The first review was due to report back by May 2017 but was delayed by the election. Any future changes would have to be approved by parliament in legislation.