A report from the Office for Budget Responsibility (OBR) has set out that the state pension age will need to rise to 68 in 2037, not 2044, bringing the increase forward by seven years. The report says the Treasury has confirmed the decision, although neither Chancellor Rachel Reeves nor her successor, John Healey, announced it.
Experts at the finance firm Fidelity said that, if the change is put in place, someone aged in their 50s today could lose upwards of £16,464, and likely more. Triple lock increases will push the value of the state pension higher between now and 2038, but those affected by the earlier age rise will miss out on a year’s worth of payments.
What the earlier state pension age rise means
Under the Pension Act 2007, the current policy is for the pension age to rise to 68 from 2044 to 2046, in a similar transitional period to the current rise from 66 to 67, which is underway and due to complete by April 2028. If the planned increase to 68 is brought forward, roughly five million people aged 49 to 55 will have to work an extra year before being eligible for their state pension.
Jemma Slingo, pensions and investment specialist at Fidelity International, said the change has "big implications" for those currently in their 50s, with "significant financial consequences". She said:
"The state pension age is rising - and it could rise faster than people expected.
"Currently, the state pension age will begin to rise from 67 to 68 in 2044. However, a report from the Office for Budget Responsibility suggests the change could take place sooner: between 2037 and 2039.
"This has big implications for a cohort of people currently in their early to mid-fifties, who may have to wait longer to receive government support. Imagine you recently turned 53, for example. Under the current timetable, you would receive your state pension at age 67, in 2040. If the rules change, however, you could be waiting until you’re 68.
"This could have significant financial consequences. The full new state pension currently pays £12,548 a year. However, it is triple lock protected, meaning it increases every year by the highest of either inflation, wages or 2.5%. In 2037, therefore, it will be worth significantly more: at least £16,464, if the triple lock stays in place. By 2040, it could be worth £17,730."
‘Extremely worrying’ and uneven impact
Dr Carole Easton OBE, 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 over a quarter of those directly affected by rises in state pension age say they are struggling to make ends meet day-to-day, compared to one in seven of those above state pension age, and more than a third of people in their early 60s expect they will need to work for longer as a result.
Foot added that modelling shows 44% of defined contribution pension savers who could be affected by a rise to 68 are already not on track to achieve the retirement they expect. Around one in seven (14%) are not confident they can work until their planned retirement age and lack significant private wealth to fall back on. She noted the impact is uneven, with twice as many lower earners expecting a significant impact on their household finances compared with higher earners.
She also said Gen X would be the first affected, and that this generation has not received the full benefit of either defined benefit or defined contribution pension systems, meaning many are tracking towards a significant drop in living standards in retirement. Foot said an official review of the state pension age is underway, so these reports should not be taken as the outcome, but the discussion about balancing fairness and affordability is one to expect in the coming months.
