The Government has frozen plans to raise the state pension age to 68, amid a drop in life expectancy and the need for more thought around the data and implications.
Work and Pensions Secretary Mel Stride confirmed on Thursday that the decision to raise the age would be delayed until after the next general election.
The current state pension age is 66 and is set to rise to 67 by the end of 2028. A further increase to 68 was due to happen between 2044-46, with ministers contemplating bringing it forward to between 2037-39. However, Stride said there will be a further review within two years of the next Parliament to reconsider the increase, noting that it needed more time to take into account the long-term impact of recent challenges, including the Covid-19 pandemic and global inflationary pressures.
Today’s announcement follows mounting speculation that the Government would hold off amid concern that it could alienate voters ahead of the next general election. It also comes amid a drop in life expectancy, with the latest data showing that the life expectancy for retiring Britons is now two years less than when the state pension age was last reviewed in 2017.
Tom Selby, head of retirement policy at AJ Bell, said: “With less than two years to go until the general election, hiking the state pension age faster would likely have been political suicide for the Conservatives who are already trailing Labour in the polls.
“The decision will come as a huge relief to those in their late 40s and early 50s who could potentially have been forced to wait an extra 12 months to receive their state pension as a result.”
Selby said increasing the state pension would also have been “unfair” given the average life expectancy has fallen, while forecasts of future life expectancy improvements have also been significantly scaled back.
Selby added: “However, this might not be the end of the story, with the government expected to say it will push any decision beyond the election. If life expectancy growth returns by then, the next administration will likely be left grappling with this thorny issue once again.”
Jon Greer, head of retirement policy at Quilter, said: “The Tories understandably look determined to try and claw back some public favour amongst its core voters by delaying its widely anticipated state pension age increase. Any increase would have proven incredibly unpopular and we may see more of these crowd pleasing policies as we head towards the general election.
“The plan to delay has been reportedly due to average lower life expectancy. However, it is forecast that the number of people over State Pension age will grow significantly over the next 20 years whilst the proportion of the working age population to support them will start to fall.”
Greer said the delay to increasing the age to 68 places the state pension’s long-term sustainability into the spotlight and could simply be a case of the current government “kicking an inevitability down the road” for the next government to deal with. It is estimated that a one-year increase in the state pension age in the late 2030s would save around £8-9 billion, while delaying the planned rise by seven years would cost at least £50 billion.
Greer added: “Overall the Government aspire to aim for ‘up to 32%’ in the long run as the right proportion of adult life to spend in receipt of the State Pension. As a compromise if they choose not to raise the age then it does not leave the Government with many levers it can pull.
“It may leave the Government with the choice of reviewing the triple lock and replacing it with a less generous uprating mechanism and/or accepting that funding for state pensions is going to increase through higher taxes or national insurance. But it’s a question of what the general public would dislike least because we face difficult decisions.
“For those worried that this delay is a short-term solution it should be known that the framework for reviewing the State Pension age sets out that there should be a minimum of 10 years’ notice for individuals affected by changes so that they can adequately plan. There should therefore be no immediate concern for anyone. However, upping contributions to a pension can help make sure that if you do end up having to wait longer to access your state pension then you have enough private pension wealth to bridge the gap.”
Marl Kiddell, chief commercial officer at Wealth Wizards, said the delay creates greater uncertainty for UK savers around retirement planning and called for a greater focus on guidance and advice services.
Kiddell said: “More and more responsibility is being placed on the shoulders of individuals to make sufficient provision for their retirement. But the majority of savers are not getting the guidance or advice they need to be able to effectively plan for their future. And this isn’t going to change until we can put in place trusted, guidance and advice services which are cost effective for both the provider and the individual, to help everyday working people to better understand and engage with their personal finances.
“The only way we see to do this is through digital guidance and advice, with convenient experiences that help people access the decision-making support they need. Financial institutions, including banks, building societies, assurers and adviser businesses, the trusted entities in financial services, have the opportunity to make this happen.”
