Introduction
In a significant government review, millions of individuals born in the 1970s may have to reconsider their retirement plans due to proposed changes to the state pension age. The review, recently announced, aims to accelerate the increase in the state pension age to 68 by seven years. However, experts speculate that this review could also result in a slowdown of the planned pension age increases. In this article, we will delve into why the state pension age is essential for retirement planning and explore the factors that may influence the decision to advance this change.
Why is the State Pension Age Important?
The state pension age is the age at which individuals become eligible to access their state pension, which often constitutes a significant portion of their retirement income. Currently, the state pension age is set at 66 for both men and women. Legislation has already been established for two further increases: a gradual rise to 67 for those born between April 1960 and 2028, and a gradual increase to 68 between 2044 and 2046 for those born after 1977.
The Need for a Review
The Pensions Act 2014 mandates regular reviews of the state pension age by the government. The first review took place in 2017, concluding that any changes to legislation regarding the increase to age 68 should be considered for an earlier implementation date of 2037-38. The current review, initiated this week, aims to evaluate the relevance of the pensionable age rules and will be published by May 2023.
Factors Considered in the Review
The government states that due to a growing population and increasing life expectancy, it is crucial to ensure that decisions related to the state pension age are sustainable, fair, and transparent to taxpayers in the long run. Moreover, as the population ages, it is vital to maintain the state pension as a cornerstone of retirement planning and financial security. The review will take into account the following factors:
- Current life expectancy data
- Balanced assessment of costs associated with an aging population and future state pension expenditure
- Consideration of changes in the job market and people’s capacity to work beyond the state pension age
- Development of clear and fair legislative schedules for the state pension age
The Role of Healthy Life Expectancy Data
To inform the review, two independent reports have been commissioned. The first report, conducted by the Government Actuary’s department, focuses on life expectancy projections. The second report, led by Baroness Neville-Rolfe, will examine the key considerations when determining the state pension age. Experts believe that this data may influence the planned increases in the pension age. Helen Morrissey, a senior pensions and retirement analyst at Hargreaves Lansdown, highlights that slowing increases in life expectancy and the unknown long-term impact of the ongoing COVID-19 pandemic make this review particularly timely. The review will also address regional differences and explore the concept of healthy life expectancy, which varies significantly across the country.
Critics Speak Out
Critics claim that this review represents yet another “moving of the goalposts” by the government, significantly impacting retirement planning. Becky O’Connor, head of pensions and savings at Interactive Investor, emphasizes that many individuals have spent a considerable portion of their working lives expecting to retire at 65. Disappointment in previous pension age changes has led to widespread skepticism about the state pension’s reliability, with younger workers often doubting its availability when they retire. Constantly changing the retirement goalposts not only breeds disillusionment but also has significant implications for retirement planning. For example, with the average age of onset of health issues preventing work being 63, individuals may be left relying on private pensions or benefits.
The Women’s State Pension Age Debate
Changes to the state pension age have historically sparked controversy, particularly regarding women. Many women argue that they faced discrimination when the government raised the state pension age from 60 to 65 and subsequently to 66, aligning it with men’s pension age. Two advocacy groups, Women Against State Pension Inequality (WASPI) and BackTo60, argue that women born in the 1950s were unfairly deprived of their pension entitlements. In July of this year, the Department for Work and Pensions (DWP) faced criticism from an influential Ombudsman for failing to provide accurate, adequate, and timely information concerning the increase in women’s state pension age.
Planning for Retirement
It is never too early to start planning for retirement. The Which? website offers a range of guides on pensions and retirement to help you get started. For Which? members, personalized assistance is available through the Which? Money Helpline, and there are also free advisory services like Pension Wise to provide guidance on retirement planning.
