A state pension age change review is set to take place, the Government has announced, and it could have major implications for when millions can retire. While the age is currently 66, with a gradual rise to 68 planned between 2044 and 2046, this could change. The next review is to consider whether the increase to age 68 should be brought forward to 2037 to 2039.
Responding to the latest review, however, a think tank has argued there may be a need for faster changes.
The International Longevity Centre-UK (ILC), has argued this will be necessary to “ensure fiscal sustainability, support intergenerational fairness and keep up with increases in life expectancy”.
At present, it is estimated the state pension costs the Government over £100billion per year.
This, the ILC states, is a number which has increased three fold since the start of the century in 2000.
The first is to have the same number of years in retirement as previous generations have.
This would mean an increase to the state pension age to 68 by 2041 – some two to four years earlier than currently planned.
The ILC has said such a move would save the Government between five to six percent than current plans after 2037.
A second choice would be to keep the ratio of people in work to those at or above state pension age constant.
Such a move could “support fiscal balance between taxpayers and pensioners”, while rapidly increasing the state pension age.
Under this criteria, it would increase to 68 by 2031, to 69 by 2034 and to 70 by 2040 – saving the Government some 16 percent in the next 18 years.
The third method would be for Britons to spend a third of their adult life in retirement, something which has been previously advocated.
This choice would deliver the slowest increase in the state pension age, reaching 67 in 2040 – but would cost more than current Government plans.
Finally, the state pension age increase could be linked to improvements in life expectancy.
The ILC states maintaining the current proportion of the population living up to and beyond pensionable age would require state pension age to reach 68 by 2032.
It would rise to 69 by 2038, and 70 by 2042 in a substantial change from the current plans.
The method is calculated to be approximately six percent cheaper than current plans after 2030, and with savings of between 12 and 16 percent from 2035.
Professor Les Mayhew, Head of Global Research at ILC, and Professor of Statistics at Bayes Business School, commented on the findings.
He said: “Deciding state pension age is not a trivial matter. The decisions made in the latest review will impact on the incomes of everybody, whether that be via pension benefits or taxes. Frankly, we’re probably going to have to increase state pension age further between 2030 and 2045 for it to be intergenerationally fair and fiscally sustainable.
“It’s not a question of ‘if’ but ‘when’ and ‘by how much’. The impact of COVID on life expectancy needs to be factored in but the trends are fairly well set in stone.
“However, the Government will need to assure that any plans for increases do not unduly exacerbate existing income inequalities without some form of remediation. Those who are unable to work for health reasons may well need additional help.”
A DWP spokesperson told Express.co.uk: “The state pension continues to provide the foundation for retirement planning and financial security in older age.
“The Government is required by law to regularly review state pension age and recently launched the second state pension age review. The review will consider whether the rules around state pension age are appropriate, based on a wide range of evidence including latest life expectancy data.”