Government announces accelerated state pension age increase – what does it mean for you?

• State pension age to rise to 68 between 2037 and 2039 – seven years earlier than under current plans

• Anyone born on or before 5 April 1970 will see no change in their state pension age

• State pension triple-lock remains in place – for now

The Government has today confirmed it will increase the state pension age faster than under existing plans.

The state pension age now stands at 65 for men while women have historically received the state pension five years earlier at age 60. From April 2018 men and women will have an equal state pension age of 65.

This will then rise to 66 by 2020, 67 by 2028 and was due to increase to 68 between 2044 and 2046.

However, society is ageing rapidly and as a result the cost of paying state pensions is expected to rise dramatically in the future.

Indeed, John Cridland – who reviewed the state pension system for the Government – estimates that in 20 years’ time state pension costs will balloon by almost £20billion unless changes are made.

What has the Government proposed?

There are two obvious ways to cut state pension spending: reduce the amount people receive or increase the age at which they receive it. The Government has opted for the latter, accelerating the planned increase in the state pension age so that it hits 68 between 2037 and 2039 – seven years earlier than previously proposed.

The change mean millions of people aged 47 and under – that is people born on or after 6 April 1970 onwards - will have to wait an extra year to get their state pension.

Policymakers will keep this under review in the future; with the aim of ensuring people spend on average “up to 32%” of their adult lives in receipt of the state pension. The implication of this aim is that if average life expectancy keeps going up, so will the state pension age. So if you’re in your 20s or 30s, you will likely face a state pension age of 69 or even 70.

It’s worth noting that the state pension triple-lock – which guarantees the annual payment rises in line with the highest of earnings, inflation or 2.5% - remains in place until the end of this Parliament in 2022. However, given the pressures on public spending it’s hard to imagine this policy lasting much longer.

What do I need to do?

Clearly 2039 is a long way away so anyone born on or after 6 April 1970 has time to adjust their retirement planning to reflect this new reality. The flat-rate state pension is worth about £155 a week in today’s money, or just over £8,000 over a year - a tidy sum but not insurmountable for most people.

The key message to take from today’s announcement is that, put simply, you cannot and should not rely on the state for your retirement income. The state pension provides a useful base income but it is not enough for most people.

Furthermore it remains under the control of politicians and thus you cannot guarantee how much you will get or when you will get it.

Anyone who wants control over their retirement needs to take responsibility for building their own private savings pot, utilising the tax reliefs on offer and contributing as much as they can, as early as they can.

Tom Selby

These articles are for information purposes only and are not a personal recommendation or advice.