The state pension age in the UK is set to steadily increase in line with longevity predictions, and it’s expected to reach 70 years earlier than previously forecasted.
The state pension age is due to rise from 66 to 67 within the next few years, using a phased approach to minimise impact on those nearing retirement.
This will be the second increase in decades following the Pensions Act 2011, which equalised the state pension age for men and women at 65 and has been gradually increasing since.
However, initial forecasts may need to be revised due to the cost of living crisis and rising life expectancy potentially placing significant pressure on the state pension system.
The increase from 67 to 68 was initially slated to occur between 2044 and 2046, but reports from the International Longevity Centre earlier this year suggest that the state pension age may need to reach 70 or even 71 by 2050.
Experts at Fidelity have emphasised that these increases are inevitable, noting that when the state pension was introduced in 1909, the eligibility age was 70 while the average life expectancy was just 52.
Balancing the system with life expectancy figures and inflation is a costly endeavour for the government.
The report also highlighted that younger people, who will be most affected by the increase to 70 years, have less wealth, savings, and investments compared to older generations. It’s worth noting that predictions and expectations around changes to the state pension age have been notoriously volatile.
For instance, a 2017 parliamentary review suggested bringing forward the rise to 68 to between 2037 and 2039, while a 2022 review recommended reaching 68 by 2043 and then increasing to 69 by 2048, rather than pausing for several years like previous changes. The government’s delayed decision may put the new Labour Government in a challenging position, particularly after facing public backlash over changes to the Winter Fuel Payment.
Experts at Fidelity cautioned that finding a solution will be a “difficult balance to strike” as they aim to keep state pension spending below 6% of the country’s GDP, which is expected to reach 8.1% by 2071 if current trends continue. Experts have underlined that only a few measures could alleviate the looming financial strain, which include options like raising the state pension age, curbing yearly rises in state pension amounts, or extending the requisite years for pension qualification.
Pension gurus have implored the public to “take control of your own pension age” by contributing to their personal pension funds early, to fully harness the powers of reinvestment and compound interest over time.
