Will pension age rise push more people into poverty?

ANYBODY who retired when the state pension age was still 65 for men and 60 for women should breathe a sigh of relief, as the retirement age is set to climb at a faster pace than any of us imagined.

Today, we all have to work on to age 66, and that will increase to 67 from 2026 and from there to 68, possibly as early as 2033.

Prime Minister Rishi Sunak knows that raising the state pension age will make the Government even less popular than it already is, but it could happen anyway.the big argument in favour is that it will become unaffordable as life expectancy rises, but that is less convincing as people are now dying at younger ages.

In 2014, the official forecast suggested that by 2028 the average 67-year-old man could expect to live to just over 88.1 years by 2028, rising to around 90.1 for women. Today, those figures have fallen to 85.7 and 87.8 years respectively, almost two-and-a-half years lower.

Dennis Reed, director of campaign group Silver Voices, said falling life expectancy means there is “no justification” for any rises in the state pension in the next decade.

Yet it is still seems likely to happen.

WORKING ON

Working into later life is not a problem in itself, provided you are healthy. It is better to stay active and engaged, and the economy needs skilled, talented and experienced workers, especially at the moment.

But many simply cannot do that. A staggering 3.5 million people aged 50 to 64 are currently “economically inactive” Age UK says, of whom one in three have savings of less than £5,000, while 120,000 having no savings at all.

The Government has to make better provision for those who cannot work on, said former Pensions Minister turned campaigner Baroness Ros Altmann. Forcing everyone to wait longer for the state pension ignores the huge differential in healthy life expectancy across the UK. “Millions only stay healthy to age 52, while the better off are well to age 70,” she said.

It is a grim truth that many will never see a penny of state pension, despite making decades of National Insurance contributions, because they die too young.

POVERTY

In a further blow, the state pension only pays a low basic income, to be topped up by company and personal pensions. “Yet the less healthy are also least likely to have a pension of their own,” Altmann said.

Raising the state pension age to 66 has already pushed one in four 65-year-olds into poverty, double the number before, according to the Institute for Fiscal Studies.this will get worse every time the state pension age rises, and new thinking is needed to help those left behind.

Altmann is calling for early access to the state pension for Britons who are in poor health or have made, say, 40 or 45 years’ of NI contributions: “That way, people can get some money earlier if they need it.”

This might have to be at a reduced level, which happens when people draw private pensions early, as they can from age 55, but is better than getting nothing at all.altmann also suggests relaxing the rules to allow earlier access to means-tested, state pension top-up pension credit, available today from 65 or 66.The problem is always the same: money.

HARD CASH

Allowing early access at a reduced rate would help those with limited life expectancy. However it could backfire if they end up living for years as their reduced state pension is unlikely to be enough, said AJ Bell’s head of retirement policy Tom Selby: “It could also present short-term cashflow challenges for the Treasury, especially if millions claim.”

Other solutions could involve means-testing the state pension, but this has been rejected for years as complex, expensive and politically unpopular.another suggestion is taxing wealthy pensioners more, say, by making them pay the full rate of NI on any earnings, as they are currently exempt.with the tax burden at a 40-year high, it will not help Sunak win votes.

The Government appears to have ruled out major reform but the current policy of hiking the state pension age for all is not working either, said Selby: “Telling millions they will have to wait longer for their pension might prove the final nail in the coffin of the Conservatives’ hopes of winning the next general election.”

‘Telling millions they will have to wait longer for their pension might prove the final nail for the Conservatives’

ON YOUR OWN

There are no easy answers as the country gets poorer and Pete Hyken, co-founder of private pension provider Penfold, said people must realise that relying solely on the state pension will no longer ensure a comfortable retirement.

“Saving into a private pension will give you greater control over your retirement and provide you with a more reliable source of income during your golden years,” he said.

This is sound advice but building retirement savings takes decades, and is getting harder as inflation rockets and wages fall in real terms.

The auto-enrolment workplace pension scheme has helped, but is not enough, while most self-employed workers do not save a penny.

Our state pension is broken and forcing people to wait longer will only make a bad situation worse.