Major change to state pension age outlined in new report
Some people may now face an extra year of work before receiving their state pension(Image: Getty Images/Science Photo Library)
A new report saying the state pension age needs to rise seven years earlier has prompted a warning about unprepared workers. This week’s report from the Office for Budget Responsibility – OBR – sets out the need for the state pension age to rise to 68 in 2037 instead of 2044.
Being seven years earlier than currently planned, this would affect people currently aged 49 and millions of people would face an extra year in work under the plans. It has led to concerns that some, unready for the change, may not have enough savings for their retirement.
In its report, the OBR says the ‘current policy’ is to move the rise forward by seven years and that the Treasury has confirmed the decision, despite the fact this policy has not been announced by Chancellor Rachel Reeves nor entered legislation, reports The Express.
According to the Pension Act 2007, the current policy sees the pension age rise to 68 from 2044-2046 – a similar period of transition to that now under way for the current state pension age rise from 66 to 67, which is set to complete by April 2028.
If the rise to 68 is brought in, this could result in around five million people aged 49 to 55 having to work for an extra year before being eligible for state pension. Dr Carole Easton, chief executive at the Centre for Ageing Better, said: “It is extremely worrying if the Treasury is thinking of making the next rise in state pension age in just over a decade’s time.
“The Government needs to be very careful about making this change. During the rise to 66, it doubled the poverty rates for 64-year-olds.
“A recent parliamentary committee report warned the impact is likely to be even bigger now for the current rise to 67. Other than the substantial savings the Treasury will make from making people wait longer for their State Pension, it is hard to see what evidence could be used to justify introducing the next rise sooner.”
Catherine Foot, director of the Standard Life Centre for the Future of Retirement, warned that many, especially those on lower incomes, are not prepared for the change. She said: “The state pension remains a critical element of retirement incomes in the UK for millions of people, and the reports that state pension age increases could be accelerated are a reflection of the difficult balancing act Government faces in keeping the system affordable while people live longer, and ensuring it remains fair and adequate for those who rely on it.”
“The challenging reality is that our research shows the pressures are already being felt most acutely by those least able to adapt to the current increase.” She said over a quarter of those directly affected by state pension age rises say they are struggling day-to-day – compared to-one in seven of those above state pension age – and that more than a third in their early 60s say they will need to work for longer as a result.
But she said its models show that that 44% of savers on work contribution pension plans are already not on track to achieve the retirement they expect and around 14% are not even sure they can work until their planned retirement age. She added that twice as many lower earners that higher earners are expecting a significant impact on their household finances.
Another consideration, if the changes come into effect, is those first affected – ‘Gen X’ – as she said they have not received the full benefit of either workplace ‘defined benefit’ – final salary – pension or ‘defined contribution’ pension so could be en-route to a significant drop in living standards in retirement.
She said: “An official review of the state pension age is underway so we should not take these reports as the outcome but the discussion about how we balance fairness and affordability of the state pension is one we can expect to hear much more on in the coming months.”
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