Raising the pension age and what it means for workers
Raising the retirement age would leave hundreds of thousands of Britons poorer in later life, campaigners say following reports the chancellor is to raise it to 68 before the end of the 2030s.
In a bid to save billions for the Treasury, chancellor Jeremy Hunt could make the announcement as early as March. If the plans go
ahead, millions born in the 1970s and after could be affected by the change. Under current legislation, the retirement age would rise to 67 in as little as four years’ time, and then to 68 by 2046 – although the government already wants to bring the latter forward to 2039.
But Caroline Abrahams, charity director at Age UK, said: “We feel strongly that there is no justification for raising the state pension age at the moment, especially as we know that the people who will lose out the most are those unable to work due to ill health and caring responsibilities, as well as anyone who becomes unemployed in mid-life and then finds it impossible to get another job, due in part to a lack of training opportunities as well as rampant ageism in the labour market.
“As things stand, any decision by the government to make today’s fifty-somethings wait longer for their state pension will consign hundreds of thousands of people to a difficult and impoverished later life.”
What does the potential pension rise mean?
The current retirement age is 66 for both men and women, having risen from 65 in 2018. UK workers entering retirement receive a state pension from the government based on their national insurance contributions during their working life under the pre-2016 system which gives workers a “starting amount”.
If a worker’s starting amount is less than the full amount of the new state pension (£185.15 per week) workers may be able to build up a higher level through contributions and credits made between 6 April 2016 and when the state pension age is reached.
Pensioners can continue working after retirement but the state pension is taxable so any additional earnings will affect how much a person receives. Raising the age workers have to wait to begin receiving their pensions means people will have to work longer, saving billions for the government as a result. Sir Steve Webb, the David Cameron-era pensions secretary who is now a partner at LCP, said “it is tempting for the Treasury to see increases in state pension ages as ‘easy money’”.
Even raising the pension age just one year earlier than currently planned could bring in more than £9bn for the Treasury, with some £8bn saved in pension payments and an additional £1.3bn taken in taxes on extra earnings, pensions consultancy LCP said. Jon Greer, head of retirement policy at wealth manager Quilter, said: “The government did signal in 2017 that it would follow a recommendation to accelerate the increase to 68 into the 2030s, so these latest rumours are arguably not a change in stance.”
He added: “Ultimately, people need to take responsibility for their own retirement and plan ahead, and taking professional advice or financial guidance earlier in life is a sensible step.”
Could the move be stopped?
According to reports, Jeremy Hunt is facing opposition from work and pensions boss Mel Stride, who is pushing for a 2042 pensions age increase – arguing that predicted increases in life expectancy have failed to materialise.
A Department for Work and Pensions spokesperson said: “No decision has been taken on changes to the state pension age. The government is required by law to regularly review the state pension age and the second state pension age review is currently considering, based on a wide range of evidence including latest life expectancy data and two independent reports, whether the rules around state pension age remain appropriate. The review will be published early this year.”
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