The state pension age will rise to 68

Older man using laptop on bed

The state pension age will rise to 68 between 2037 and 2039, affecting everyone aged 46 or under now.

The Government decision jettisons existing legislation which anticipated the increase to 68 happening far later, between 2044 and 2046. However, it was widely expected since it merely accepts the recommendation of an official report issued in March.

The move is bound to disappoint those having to wait longer to retire. But while it has sparked an outcry among detractors, it has also attracted support from some financial experts who say it makes the state pension fair and affordable.

We look at why the Government has decided to increase the state pension age, and round up the views for and against below.

When will you be able to retire?

The state pension age is already rising for many older people, and now changes are spreading to younger generations.

At present, it's still 65 for men, but the age at which women qualify for the state pension is in the process of rising from 60 to 65 by November 2018, with the exact date depending on the month you were born.

Between October 2018 and October 2020, both men and women's state pension age will increase to 66. And between 2026 and 2028, it will rise again to 67.

The rise to 68 just announced by the Government will happen between 2037 and 2039, after it accepted the recommendation of ex-Confederation of British Industry boss John Cridland, who carried out an official review of future state pension age increases.

The changes to the state pension age are aimed at bringing women's state pension age into line with men's, and taking account of everyone living longer.

Why is the hike to 68 being brought forward?

Officially the rise to 68 was meant to happen between 2044 and 2046, but this timetable has been under review for some time amid growing concern about whether the state pension is affordable.

Ideas have been floated lately about means testing the state pension, or scrapping it entirely for the rich, to ensure it can continue for those who need it most.

The Government has pointed out that latest projections from the Office for National Statistics show the number of people over state pension age in the UK is expected to grow by a third between 2017 and 2042, from 12.4million in 2017 to 16.9million in 2042.

However, its decision on the state pension age arrives a day after a new report suggested massive gains in life expectancy over recent decades are grinding to a halt.

The new timetable for an increase to 68 will affect everyone born between 6 April 1970 and 5 April 1978 - everyone older is covered by previous announcements or has already retired.
'Those affected by this proposed timetable will on average still receive more state pension over their lifetime than generations before them,' said the Government.

'When the modern state pension was introduced in 1948, a 65-year-old could expect to spend 13.5 years in receipt of it – 23 per cent of their adult life.

'This has been increasing ever since. In 2017, a 65-year-old can now expect to live for another 22.8 years, or 33.6 per cent of their adult life.'

'Failing to act now in light of compelling evidence of demographic pressures would be irresponsible and place an unfair burden on younger generations.

'Keeping the state pension age at 66 would cost over £250billion more than the government’s preferred timetable by 2045/46.'

What do experts on the elderly say?

'The Government is picking the pockets of everyone in their late forties and younger, despite there being no objective case in Age UK’s view to support it at this point in time,' said Caroline Abrahams from the charity.

'Indeed, it is astonishing that this is being announced the day after new authoritative research suggested that the long term improvement in life expectancy is stalling.

'For people in midlife and younger their state pension may seem a lifetime away but the fact is that the change announced today will have a real impact on them later in life.

'Meanwhile, Age UK remains very concerned about the situation of millions of people in their sixties today who are unable to work because of ill health, caring or unemployment, who are having to wait longer for their state pension than they had reasonably hoped and expected and who are being thrown back on a benefits regime that was not really designed for them, or forced to draw down savings put away to see them through their retirement.'

Dr Anna Dixon, chief executive of the Centre for Ageing Better, said: 'If people are to work for longer, urgent action is needed from Government and employers to make the labour market fit for purpose.

'Currently older workers are not properly supported at work, and there is a rapid fall in employment rates over the age of 50, with a marked increase in perceived job insecurity.

'By the year before people reach state pension age, over half are not working and there are one million people aged 50 to 64 who would like to work but are not, most having left due to poor health, redundancy, or caring responsibilities.

'Employers must introduce flexible working arrangements that allow people to balance these pressures.

'Inequalities in life expectancy and healthy life expectancy mean that many people will find it impossible to work until state pension age, and without additional support or mitigating policies from Government will face financial difficulties and hardship in later years.'

What do pension experts say?

'This proposal will affect more than seven million people in their late 30s and 40s – the sandwich generation,' said Graham Vidler, director of external affairs at the Pensions and Lifetime Savings Association.

'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.

'We call on the Government to follow up on one of Cridland’s other recommendations and provide access to"Midlife Financial MOTs". This will help those people who need to work longer before they receive their state pension to make smarter financial choices to boost their savings.'

Jamie Smith-Thompson, managing director of pension advice specialist Portafina, said: 'On the one hand this doesn’t come as a surprise. In an ageing society, the government needs to set limits on what it is able to pay out on retirement.

'However, we sympathise with those people who feel anger at this latest change. They have probably been paying National Insurance contributions for a number of years only to find they need to work longer for a benefit that was promised at an earlier age.

'It would be illegal to change the same type of rules in a final salary pension. The fact that the government is constantly changing the rules seems very unjust.'

Patrick Connolly, certified financial planner at Chase de Vere, said: 'While today’s announcement which accelerates the time scale for the State pension age to increase from 67 to 68 will be unpopular, it should come as no surprise.

'State pensions are being put under severe pressure as an ageing population means there will be more people claiming it and comparatively less people paying taxes to meet these claims.

'At the same time, increasing longevity will mean higher government costs in other areas such as healthcare and social services.

'For the state pension to remain viable either the state pension age will need to continue rising in line with life expectancy increases, state pension benefits need to be cut or the state pension becomes a means-tested benefit which isn’t universally available. None of these are particularly attractive options.'

Andrew Tully, pensions technical director at Retirement Advantage, said: 'Costs for funding the state pension are predicted to rocket, so it is no surprise some tough choices needed to be made.

'Bringing forward the increase in state pension age by just a few years saves government £74billion.

'Despite all the changes to state pension age currently taking place, our research shows people are still hard-wired to a retirement age of 65, even though that is highly likely to be before their state pension age.

'For many people the state pension will be the bedrock of their retirement income, so it is crucial the government learn lessons from recent experience and ensure future changes are clearly and widely communicated.’

Steven Cameron, pensions director at Aegon, said: 'It’s ironic that the Government is proceeding with an accelerated increase in the state pension age days after statistics show improvements in life expectancy may be levelling off, meaning this increase may be less justified on affordability grounds.

'A blanket increase in state pension age will be particularly concerning for those who through health concerns, job pressures or lack of employment opportunity simply can’t keep working into their late 60s.

'Requiring everyone to wait till an ever increasing age to draw a state pension is inflexible and increasingly out of sync with private pensions which can be taken from as early as age 55.'

Ed Monk, associate director for personal investing at Fidelity International, said: 'No one will rejoice at the thought of waiting longer for their state pension but the truth is that such changes are necessary if the current system is to be made sustainable.

'The population is growing, ageing and living for longer and accelerating the rise in the state pension age is just making us walk faster up a path which we were already on.

'We should not be too pessimistic about retiring later. Being 68 years old in 2037 will not be the same as being 68 in 1948, when the modern state pension was introduced. In general we’re becoming healthier and more active in later life and so better able to cope with working longer.

'Having said that, the Government is right to identify the problems faced by workers in more physical jobs, and to encourage changes in the jobs market to help them cope with later retirement.

'By telling everyone now about this change, we do have a clear pathway as to when future generations should expect to retire.

'If you are around the age of 25, you can expect to retire at 70, if you’re 35 then it will likely be 69 and if you’re 45 then it’s going to be 68. This effectively gives the nation a clear expectation of where the state pension age is going for decades to come.'

When will you get a state pension?

The age at which women qualify for the state pension is in the process of rising from 60 to 65 by November 2018, with the exact date depending on the month you were born.

Between October 2018 and October 2020, both men and women's state pension age will increase to 66. And between 2026 and 2028, it will rise again to 67.

How much is the state pension?

The basic state pension is £122.30 a week. It is topped up by additional state pension entitlements - S2P and Serps - accrued during working years.

That two-tier system has changed for people retiring since 6 April 2016, when it was replaced by a new 'flat rate' state pension. This is worth £159.55 a week.

However, people who have contracted out of S2P and Serps over the years get less than this.

Workers needed to have 30 years of qualifying National Insurance contributions to get the old state pension, but they now need to have 35 years of contributions to get the new flat rate state pension.

But even if you paid in full for a whole 35 years, if you contracted out for some years on top of that it might still reduce what you get.

Everyone gets the option of deferring their state pension to get more in their later years. You can check your NI record here.

Copyright © Associated Newspapers Ltd. All Rights Reserved.

 

This article was written by Tanya Jeffries from Daily Mail and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

retirementplanning.jpg