The Government announced yesterday that the planned increase to the state pension age will be brought forward by seven years, which has the potential to scupper the retirement plans of millions of workers. Will you be impacted?
The state pension age was always set to rise, yet it's doing so far earlier than expected: if the proposal goes through Parliament, the rise to age 68 will happen between 2037 and 2039, as opposed to between 2044 and 2046 as had originally been planned. This will affect all those currently in their late 30s and 40s, who could have to work up to a year longer than expected.
The Government said that it's come to the decision based on recommendations set out by the Cridland Review, in response to increasing life expectancy and a growing number of people in receipt of the state pension. It was felt that the current system needed reform, as under current plans, the cost of funding the state pension would quickly become unsustainable, with billions of pounds needing to be stumped up by the taxpayer.
"We need to ensure that we have a fair and sustainable system that is reflective of modern life and protected for future generations," said Secretary of State for Work and Pensions David Gauke, with the statement adding that "failing to act now [would] be irresponsible and place an unfair burden on younger generations".
The change will impact everyone born between 6 April 1970 and 5 April 1978, so if you're in that age range, get ready to have to work up to a year longer than planned. The move is expected to save the taxpayer £74 billion by 2045/46, but this will probably come as little consolation to those facing another year at the grindstone.
Graham Vidler, director of External Affairs at the Pensions and Lifetime Savings Association, said that the proposal "will affect more than 7 million people in their late 30s and 40s – the sandwich generation. This group are also those most at risk of inadequate private saving – they have not had the same access to final salary pension schemes as their parents, and are too old to enjoy the full benefits of automatic enrolment that their children will see."
So what can you do? Well, although the state pension won't kick in until you're 68, there's nothing to stop you from retiring sooner if you want to – you just need to make sure you've got your own pension provision sorted.
"The government is taking a gradually declining role in supporting retirement income," said Jon Greer, Old Mutual Wealth head of retirement policy, "[which] means that individuals will have to save harder for their own retirement." That means you'll want to save as much as possible from as early as you can, ideally saving into a workplace pension, but not overlooking things like cash or stocks & shares ISAs either.
The sooner you start, the more you're likely to build up in your pension pot over the years, and hopefully you won't be caught out later down the line. Indeed, research from Prudential shows that one in seven people retiring this year has made no provision for their retirement whatsoever, and as such will be relying heavily on the state pension – if you want the chance to retire earlier, or want a higher income than the state can offer, it's vital to be prepared.
Find out more about the workplace pension and why you need one, and hopefully the rise in state pension age won't impact you too much
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.