Government confirms delay in bringing forward state pension age

The government will now delay making a decision until after the next general election.

The government has confirmed today that it will not bring forward the date the state pension age will rise.

At present, the state pension age is 66 and on current plans is set to rise to 67 by 2028 and to 68 between 2044 and 2046, however it was rumoured this could be brought forward to as early as 2035.

In his November Budget, chancellor Jeremy Hunt announced the outcome of a review of the state pension age would be shared early in 2023. There was speculation that this could be increased to 68 earlier than currently planned, especially after retaining the triple lock this April.

Next week, the state pension will increase by 10.1% in line with the rising cost of living, as part of the triple lock.

In a statement, the Government confirmed that it will undertake a” further review within two years of the next Parliament to reconsider the rise to age 68″.

Mark Kiddell, chief commercial officer at Wealth Wizards, said: “The decision today effectively kicks the can down the road to past the next election. This and the potential further delay to the pensions dashboard, creates greater uncertainty for UK savers around their retirement planning.

“The State Pension provides the foundation of retirement income for most retirees. Our data shows 1 in 5 savers are seeing a drop in their retirement living standard, since the PLSA updated their benchmarks to reflect rising costs.

“More and more responsibility is being placed on the shoulders of individuals to make sufficient provision for their retirement. But the majority of savers are not getting the guidance or advice they need to be able to effectively plan for their future. And this isn’t going to change until we can put in place trusted, guidance and advice services which are cost effective for both the provider and the individual, to help everyday working people to better understand and engage with their personal finances.

“The only way we see to do this is through digital guidance and advice, with convenient experiences that helps people access the decision-making support they need.

“Financial institutions, including banks, building societies, assurers and adviser businesses, the trusted entities in financial services, have the opportunity to make this happen.”

Andrew Tully, technical director at Canada Life, commented: “It is understandable why the Government has delayed this decision. However, with the cost of state pensions increasing and the current position of UK finances, we need a proper debate on the future of the state pension.

“Increases to life expectancy have not only slowed but projected to go into reverse since the last review. We also have a very unequal position with people in the poorest areas yet to see or feel the impact of the levelling up agenda, which will take decades and generations in terms of public health inequality. That supports a delay to the increase to state pension age as it will hit those in the poorest communities the hardest.

“The huge disparity in life expectancy across the UK is stark – as an example life expectancy in Kensington & Chelsea for a 65 year old male is 22.4 years whereas 17 miles away in Barking & Dagenham it is 17.5 years. It is even lower in other areas such as parts of Liverpool and Glasgow.

“Equally, it has to be acknowledged the state pension is hugely expensive, and in our pay-as-you-go system where the tax from the workforce pays the pensions of retirees’ there has to be a sensible debate around intergenerational fairness and the affordability of the state pension in its current format. Looking to the future we will see significant changes in the make-up of the UK population which will have a direct bearing on the state pension system. By 2045 the number of people of pensionable age will grow to 15.2 million, an increase of 28% on the level in 2020. The ‘oldest old’ cohort is also increasing with the number of people age 85 and over projected to almost double to 3.1 million by 2045.

“At the same time, the working age population will increase by much less – increasing by around 4.5% by the mid-2030s but then remaining around that level by 2045. Meanwhile we are seeing a decrease in the number of children with those age 0 to 15 projected to fall by nearly 9% by mid-2030. If we see this shift in the ratio of workers to retirees this will clearly have significant implications around any debate on the future funding of the state pension.

“Any changes to state pensions are always going to be controversial but it is a debate which needs to take place, sooner rather than later, and ideally any changes need to have cross-party support.

“Another key point is the minimum pension access age is linked to the state pension age. This is due to increase from the current age 55 to age 57 from 2028 and then it will increase again as and when SPA increases further, a point people need to consider as part of their retirement planning.”

Jon Greer, head of retirement policy at Quilter, added: “The Tories understandably look determined to try and claw back some public favour amongst its core voters by delaying its widely anticipated state pension age increase. Any increase would have proven incredibly unpopular and we may see more of these crowd pleasing policies as we head towards the general election.
The plan to delay has been reportedly due to average lower life expectancy. However, it is forecast that the number of people over State Pension age will grow significantly over the next 20 years whilst the proportion of the working age population to support them will start to fall.

“The delay to increasing the age therefore does put the state pension’s long term sustainability into the spotlight and this could be the government simply kicking an inevitability down the road for the next party to take government to deal with. Overall the Government aspire to aim for ‘up to 32%’ in the long run as the right proportion of adult life to spend in receipt of the State Pension. As a compromise if they choose not to raise the age then it does not leave the Government with many levers it can pull.

“The IFS suggest that a one-year increase in the state pension age in the late 2030s would likely save around £8-9 billion a year in today’s terms. However, delaying the planned rise in the state pension age to 68 by seven years would cost at least £50 billion.

“It may leave the Government with the choice of reviewing the triple lock and replacing it with a less generous uprating mechanism and/or accepting that funding for state pensions is going to increase through higher taxes (or national insurance). But it’s a question of what the general public would dislike least because we face difficult decisions.”

Rozi Jones (Financial Reporter)

Retirement ProfessionalsGovernment confirms delay in bringing forward state pension age