Millions of people in their early 50s could miss out on up to £18,000 if the state pension age is hiked to 68 faster than expected, new research reveals.
A new Government review of the state pension qualifying age has triggered speculation it might have to rise substantially to contain rapidly rising costs.
The state pension is currently worth £230.25 a week or nearly £12,000 a year if you have paid enough National Insurance years to receive the full amount, and it starts at age 66.
The qualifying age is already set to rise to 67 between 2026 and 2028, and then the next increase is technically not scheduled until the mid 2040s, which will affect those born from 6 April 1977.
The Government is expected to give at least 10 years’ notice of a change in the timetable, but it could act straight after the current official review concludes in 2029, according to wealth manager Rathbones.
This could mean the rise to 68 is accelerated to 2039-41, which would affect workers now aged 51, 52 and 53, it says.
State pension: It’s currently worth nearly £12,000 a year if you have paid enough National Insurance, and it starts at age 66
Rathbones has crunched the numbers for future rises under the state pension triple lock, and reckons the annual amount could hit £17,774 in the year someone who is 51 now turns 68.
When a 52-year-old is 68 – in 15 years’ time – they could miss out on a year of state pension worth £17,340.
And someone who is 53 now could lose out on £16,918.
That is based on the state pension rising by at least 2.5 per cent a year, which is the minimum increase required under the triple lock pledge – so could easily be higher, unless politically difficult steps are taken to soften the popular guarantee.
The triple lock means the state pension increases every year by the highest of inflation, average earnings growth or 2.5 per cent.
The Government has promised to stick to the triple lock for the whole of this parliament.
Although questions have been raised about affordability the Government has effectively, if not in so many words, told the experts working on the next two state pension age reports to operate under the assumption the triple lock pledge will remain in place indefinitely.
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The Government is required by law to review the state pension age every six years, so it has ordered two reports which will look at when to hike to 68.
It will examine this in light of life expectancy, public spending and population trends.
But a recent report by independent think tank, the Institute for Fiscal Studies, warned that without reform of the state pension triple lock, the retirement age would have to rise to 74 by 2069.
Meanwhile, the Government has launched a new Pensions Commission to try to stop future retirees ending up poorer than older people today.
Rebecca Williams: State pension situation appears particularly precarious for those in their early 50s now
It says nearly half of working age adults are saving nothing at all into a pension – despite the success of auto enrolment into work schemes – and nearly 15million people are under-saving for retirement.
Rebecca Williams, a financial planning boss at Rathbones, says: ‘With longevity increasing and population pressures mounting, future generations appear set to face a less generous state pension regime than that enjoyed by many of today’s retirees.
‘The situation appears particularly precarious for those in their early 50s who face a real prospect of missing out.’
She says people in their late 40s and early 50s have come to her firm asking for help getting their retirement finances on track, given the shifting goalposts when it comes to pensions.
‘The state pension alone is not enough for a comfortable retirement,’ cautions Williams.
‘Individuals need a broad foundation built on workplace pensions, private savings, and the ongoing support of pension tax relief.
‘Cracks are beginning to show in the system,’ she warns.
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