The results of a major state pension review are due to be published in May 2017, however experts are already stating that they expect up to 30 million people to have to wait an extra year before receiving a state pension (1). This means that anyone set to retire after 2028 will have to work longer, and the retirements of people currently aged 22 to 54 will be shortened (2).
The Daily Telegraph have looked at the implications of these potential changes and estimate the plans could save the Treasury’s around £240 billion by shaving an extra 12 months off the state pension entitlement (2). Experts who are predicting the adoption of these changes describe them as a “politically painless” way to drastically cut pension spending (2).
Richard Harrington, the pensions minister, has talked about the importance of making the state pension sustainable in light of longer life expectancies (3). The Department for Work and Pensions are currently exploring the link between life expectancy and pension spending to identify if and when the pension age needs to rise.
The DWP have now identified two options (2): make no changes to a formula, which triggers state pension age increases when an average person can be expected to spend a third of their adult life retired. Or, reduce the point in the formula from a third to 32%. Although this sounds a small change it would move the state pension date above 67 years old from 2028, instead of 2039 (4).
Plans for a full state pension review have been circulating since 2013 but this potential change to pension age only reached the media in mid-November. Richard Harrington summed up the aim as follows: “People are living and working longer than ever before, that is why it is important we get this right to ensure the system stays fair and sustainable for generations to come (2).
David Robbins from Willis Towers Watson, said: “If the Government needs to shore up the public finances, it would struggle to find a more politically painless way to take £8,000 off tens of millions of people. In fact news that the State Pension Age will rise to 67 by 2028 barely generated a squeak of protest” (2)
Mr Robbins also predicted that the government may start the process of increasing the pension age to 68 as soon as it hits 67 in order to catch the substantial increase of future pensioners born during the mid-1960s baby boom. A higher State Pension Age will also boost tax revenues if people respond by staying in work later (2).
The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.