The Office for Budget Responsibility (OBR) has issued a report warning that the state pension age needs to rise to 68 by 2037, seven years earlier than the current target of 2044. This change would affect people currently aged 49 and over, forcing millions to work an additional year before receiving their state pension.
Impact on Workers Aged 49 to 55
According to the OBR, the Treasury has confirmed this accelerated timeline, although it has not been formally announced by Chancellor Rachel Reeves nor enacted into legislation. The current policy, set by the Pension Act 2007, originally scheduled the rise to 68 between 2044 and 2046. If brought forward, around five million people aged 49 to 55 could face an extra year of work before becoming eligible for the state pension.
Concerns Over Unpreparedness and Poverty
Dr Carole Easton, chief executive at the Centre for Ageing Better, expressed deep concern: “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.” She added that a recent parliamentary committee report warned the impact could be even greater for the current rise to 67.
Catherine Foot, director of the Standard Life Centre for the Future of Retirement, highlighted that many, particularly lower earners, are unprepared. “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,” she said. “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.”
Financial Strain on Lower Earners
Foot noted that over a quarter of those directly affected by state pension age rises report struggling day-to-day, compared to one in seven of those above state pension age. More than a third in their early 60s say they will need to work longer as a result. Her models indicate that 44% of savers on workplace pension plans are not on track for their expected retirement, and around 14% are unsure they can work until their planned retirement age. Twice as many lower earners as higher earners expect a significant impact on their household finances.
Generation X at Risk
Those first affected, Generation X, may not have fully benefited from either final salary (defined benefit) or defined contribution workplace pensions, potentially leading to a significant drop in living standards in retirement. Foot added: “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.”
