Experts are warning that some workers may have to wait until they are 74 before they get a state pension.
A report has found the current retirement provision is becoming too expensive and changes might have to be made in future. The state pension age is now 66 but this will rise to 67 between 2026 and 2028.
The next hike to age 68 not planned until 2046 but may be brought forward to 2035. It comes as the basic state pension rose by 10.1% this month in line with September 2022’s inflation rate at an extra cost of £11bn to the Treasury.
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However, a major review into pensions commissioned by the Government has concluded that the current scheme is simply becoming too expensive and something will have to give. According to experts who have analysed the report, either the state pension age will have to rise rapidly, which will hit anyone currently under 40 particularly hard, or the triple lock will need to be axed very soon, ChronicleLive reports.
The rising number of people reaching state pension age and living much longer beyond that, and the shrinking number of workers to pick up the state pension bill via taxes mean the state must pay an old age income to more people for longer than it once did. Every year, the cost of paying out pensions increases by billions of pounds as it rises under the triple lock, the mechanism that ensures pay-outs increase in line with whichever is higher — prices, earnings or 2.5 per cent.
Because of this, every few years, the state pension age is reviewed by the Government, and experts have warned that Britain’s state pension age — currently 66 — could ultimately rise as high as 74 for many of those working today. When it was first introduced in 1909, the state pension was paid only to men and women over the age of 70, but as things stand, the age at which you start to collect your state pension is 66.
But this rises to 67 between 2026 and 2028, so anyone aged between 47 and 63 now will have to wait until then before they can collect their state pension. The next increase to 68 was not planned until 2046 but the Government was rumoured to be considering bringing that forward to 2035.
However, the decision was delayed until after the next election, so currently anyone aged 45 or younger won’t get their state pension until they reach 68. A further increase to the age of 69 is already projected to happen between 2046 and 2048.
This means those born in 1977, aged 46 today, could be the first to face a longer wait. So far, men who reached state pension age between 1996 and 2020 have spent 31 per cent of their lives in retirement, according to the report.
But with rising life expectancy, the state pension age must increase to keep the balance at 31 per cent. An independent report carried out by Conservative peer Lucy Neville-Rolfe has backed the Government’s aim to limit the rise in state pension costs between now and 2070 to six per cent of our gross national income, and according to Becky O’Connor, of PensionBee, this means the state pension could be classed as ‘unaffordable’ by the Government in just two years.
Pension costs could spiral to £142billion and exceed the six per cent limit by 2025, says Ms O’Connor, meaning the state pension triple lock, is therefore under threat. “It looks as though state pension spending could be at risk of breaching a six per cent limit within a matter of years,” she told This Is Money. “So, this opens up a whole new set of uncertainties around the triple lock and whether or not it would be possible to continue to use it.”
And Alice Guy, of stockbroker Interactive Investor, warned that a 30-year-old today might not get their state pension until they reach 74 if the six per cent spending cap is kept in place. This would mean they miss out on eight years of state pension compared with someone hitting state pension age today and an estimated £209,432 foregone, Ms Guy says.
Steven Cameron, of pensions firm Aegon, agrees that aggressive hikes to the state pension age could be on the cards. ‘It’s not unconceivable that pension age rises beyond 70 when you look at how quickly it is increasing from 65 to 68,’ he said.
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