Millions of people in their twenties face not being able to claim their state pension until they are aged 70 under a series of options being considered by the government.
The prospect of faster increases to the state pension age was put to ministers this week as they consider ways to manage the growing costs of the UK’s ageing society.
What is the problem?
The government currently spends about £100bn a year on the state pension and pensioner benefits and this is set to grow as the population ages. This year, about 6,000 people are expected to celebrate their 100th birthday. By 2050, this figure is anticipated to rise to 56,000 people.
Against this demographic backdrop, the government commissioned an independent review of the state pension age last year to help it consider the pace of future rises.
The state pension age is currently 65 for men and 63 for women, rising to 65 for both sexes by 2018, and then 66 by 2020 and 67 by 2028. In the current tax year, the basic state pension for those who reached state pension age before April 2016, is a maximum of £119.30 a week, or £6,204 a year. The new state pension, for those who reached state pension age after April 2016, is a maximum of £155 per week, or £8,060 a year.
The Cridland Review looked at options for state pension age rises after 2028.
Ministers also asked the Government Actuary’s Department (GAD) to model pension age rises based on two scenarios.
What did the reports conclude?
John Cridland, the independent reviewer of the state pension age, made three key recommendations.
First, that the state pension age should rise from 67 to 68 by 2039, seven years earlier than currently timetabled.
Second, the “triple lock” — which sees pensioner incomes rise by the higher of prices, average earnings or 2.5 per cent — should be scrapped at the next parliament and replaced with a link to earnings.
Finally, Mr Cridland rejected calls for those in poorer health, or who had long working lives, to be allowed to claim their pension at an earlier age.
A separate report presented to ministers by the Government Actuary’s Department set out a schedule for more aggressive increases in the state pension age than recommended by Mr Cridland.
Who will be affected?
About 5.4m people aged under 45 could see their pension age pushed up from 67 to 68 if Mr Cridland’s timetable is adopted by the government.
The second report by the GAD presented a scenario of faster rises which could see those aged under 30 only having access to the state pension by the age of 70.
“The prospect will be particularly unwelcome for anyone in their 30s or early 40s, as they are now likely to see their state pension age being postponed, meaning extra years of work — but hopefully longer lives too,” said Lesley Harrold, a lawyer in the pensions team at Norton Rose Fulbright, a legal firm.
“However, some fear that a state pension age of 70 could be implemented as soon as 2054. Under existing plans, the state pension age is due to rise to 68 for those born after 1978.”
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The Trades Union Congress, the UK’s largest union, said faster increases in the state pension age would hit the poorest hardest, due to the substantial inequalities in life expectancy and, particularly, healthy life expectancy.
Mr Cridland’s recommendation to scrap triple-lock protection would also mean that future state pension rises will not be as generous. He has instead suggested that pension rises be linked to earnings from the next parliament. The move will hit tomorrow’s pensioners, but was welcomed by campaigners who believe the triple lock put older generations at an advantage.
“It simply cannot be fair that young people, hit by having to work to 70, should have to continue paying today for the triple lock for well-off boomers and those on overgenerous final salary pensions, many of whom simply do not need the state pension,” said the Intergenerational Foundation.
Mr Cridland has softened some of his proposals by suggesting access to a means-tested pensioner benefit a year before state pension age (when it rises to 68) for long-term carers and people with ill-health or disabilities.
How has the government responded to these reports?
The government will not make any immediate decisions, but will consider both reports and is expected to announce its position in May.