A new report is advising the Government to speed up the process of increasing the state pension age. If it is implemented it could mean millions of people having to work longer before they are entitled to receive their state pension.
What has happened?
The Cridland Report was released last week and proposes that the government bring forward the date when the state pension age goes up to 68.
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At present the age you can claim your state pension is 65 for men and 63 for women, but it will rise to 65 for both sexes next year. Then it will increase to 66 in 2020 and 67 by 2028. Then the plan is for it to rise to 68 in April 2046, but the report has called for that increase to be brought forward by nine years to 2037.
“Reviewing the state pension age during each Parliament is part of our commitment to creating a fairer society, helping to ensure that it is sustainable for future generations,” says Pensions Secretary Damian Green.
“As Government goes about making its decision on the future state pension age in May of this year these contributions and recommendations will provide important insight.”
Who will be affected?
The hardest hit group will be those in their early 40s who may find themselves having to work 12 months longer than they had planned before they can claim their state pension. It will affect everyone under the age of 45, but those in their early 40s are the most likely to already have retirement plans in place based on retiring at 67.
However, the news is also concerning for those under the age of 40. If the process of increasing the state pension age is sped up, it makes it more likely that people currently in their late 30s will have to work until they are at least 70.
Why does pension age need to change?
Our state pension is funded on a ‘pay as you go’ basis. That means rather than having a big slush fund of cash that is used to cover pension payments the working population’s taxes go straight out to pay the pensions of those who are retired.
The concern is that with an aging population the pension bill is constantly rising and the working population may not always be able to cover the bill.
At present the state pension costs around £100bn a year and this year 6,000 people are expected to celebrate their 100th birthday. But, by 2050 the number of people turning 100 is forecast to have risen to 56,000. Clearly, something needs to be done otherwise the state pension will cease to be affordable.
Is there an alternative?
Yes. A particular concern with the ever-increasing state pension age is the affect it will have on people who simply can’t continue doing their jobs past a certain age. No-one wants a doddery surgeon and many manual labourers physically can’t continue into old age.
“The current system only helps those who are healthy and wealthy enough to work longer. If someone can work beyond state pension age, they can get a much larger pension but there is no help for people to get their state pension earlier if, for example, they started work exceptionally young, perhaps in tough industrial jobs and genuinely cannot keep going till nearly 70,” says former pensions minister Baroness Ros Altmann.
“I think moving away from just one ever-increasing age, would be more socially equitable. A band of starting ages, such as between 65 and 69 with adjusted payments would be fairer.”
