Workers in their 30s could reach State Pension age at 70
The independent review of the State Pension age includes a number of recommendations to deal with the challenges of a growing and ageing population, as well as the “unprecedented” increase in life expectancy.
The author, John Cridland, former head of the Confederation of British Industry (CBI) said he needs to balance these challenges and so the following recommendations made are the “best balance for a fair and sustainable state pension age”:
- The State Pension age should rise to age 68 over a two-year period starting in 2037 and ending in 2039 (current programme wouldn’t reach age 68 until 2046), and that the age should not increase more than one year in any 10-year period.
- The triple lock guarantee on pensions (it rises annually by the higher of inflation, earnings growth or 2.5%) should be scrapped within the next parliament.
- People should be able to access a “mid-life MOT” to “take stock, and make realistic choices about work, health and retirement”.
- As part of the Auto-enrolment review, the government should consider allowing couples the option to combine their private pension savings into a joint pot to mitigate disadvantages caused by one partner taking time out of the labour market, eg for childcare.
- Those deferring their State Pension should be rewarded through a lump sum once they start drawing on it.
- The means-tested benefit for pensioners to be set one year below State Pension age once the increase to 68 is introduced, for those in ill health or because of caring responsibilities.
- Those over State Pension age should be able to part drawdown their State Pension, leaving the balance to benefit from the deferral arrangements.
The suggestions made reflect estimates that by 2050, more than 56,000 people will reach the age of 100, and a baby girl born in 2017 can expect to live to the age of 94, while for a boy it’s 91.
A separate report by the Government Actuary’s Department has also been published today pointing to a State Pension age of 70 for anyone born after 6 April 1986.
Mixed news for future retirees
Tom McPhail, head of retirement policy at Hargreaves Lansdown, said: “This report is going to be particularly unwelcome for anyone in their early 40s, as they’re now likely to see their state pension age pushed back another year. For those in their 30s and younger, it reinforces the expectation of a state pension from age 70, which means an extra two years of work. This report also looks like the death-knell for the State Pension Triple Lock.
“The good news, in as much as there is any here, is that these measures will help to keep the state pension sustainable in the long-term. The proposals around a mid-life MOT, employment opportunities for older workers and split deferral of the state pension should all help to extend working lives.”
Richard Parkin, head of pensions policy at Fidelity International, said the recommendations have “hit the right note” but there were two things that were not fully addressed.
“Firstly, while the commitment to individuals spending a year in retirement for every two years worked introduces an element of intergenerational fairness, it still means that the working population will bear a heavier burden than their predecessors in supporting the State Pension due to the dependency ratio – the ratio of workers to pensioners – falling thanks to lower birth rates. Perhaps controversially, limiting immigration will only exacerbate this problem as it will reduce the number of workers with little impact on the numbers in retirement.
“Secondly, if we aren’t going to allow the less wealthy or those in ill health to access their State Pension early then we do need to ensure that automatic enrolment is expanded to cover these people. While this may not generate a lot of extra income, it can provide some bridging income between when they have to stop work and when the State Pension becomes payable,” Parkin said.