Labour has ordered a review of the state pension age amid concerns that people are not saving enough for their retirement.
The state pension age is currently 66 for men and women. It is due to rise to 67 between 2026 and 2027, and to 68 in 2044 to 2046.
By law, the government must review the age at which people can claim the state pension every six years. The review will consider whether the current state pension age is still appropriate, based on factors such as life expectancy.
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The government has also revived the Pensions Commission in a bid to tackle the “retirement crisis that risks tomorrow’s pensioners being poorer than today’s”. It warns that too many working-age adults (45%) save nothing at all into a pension.
Liz Kendall, work and pensions secretary, comments: “People deserve to know that they will have a decent income in retirement – with all the security, dignity and freedom that brings. But the truth is, that is not the reality facing many people, especially if you’re low paid, or self-employed.
“The Pensions Commission laid the groundwork, and now, two decades later, we are reviving it to tackle the barriers that stop too many saving in the first place.”
What is the State Pension Age Review?
Today’s announcement marks the start of the third State Pension Age Review. The second one was published in March 2023 by Rishi Sunak’s Conservative government.
As part of the State Pension Age Review, Labour has commissioned two independent reports for it to consider when deciding the state pension age for future decades:
Dr Suzy Morrissey will report on factors that the government should consider relating to state pension age
The Government Actuary’s Department will prepare a report on the proportion of adult life in retirement
The review will take into account the latest life expectancy data, and look at fairness between generations, as well as international comparisons.
It will also consider the impact of previous changes to state pension age, fiscal costs and impacts on current taxpayers and those who may be, or become, reliant on the state pension as their primary source of income, “as well as how we best support an ageing population and their opportunities to work”, according to the Department for Work and Pensions.
The report is expected to include an assessment of current legislative timings for the rise to age 68 between 2044 and 2046.
The government does not have to accept the review’s recommendations.
Will the state pension age rise?
Changing the state pension age is an emotive issue. Workers are often dismayed when the age goes up and they have to work for longer before they can claim the state pension.
It’s also a contentious one. The Women Against State Pension Inequality (Waspi) group has been campaigning for years about how a badly-communicated increase in the state pension age impacted many women born in the 1950s, leaving them little time to prepare financially.
The review could agree with the current timetable at which the state pension age will rise to 67 and then 68. Or, it could suggest the increases are accelerated (or possibly slowed down). It may also recommend further age increases, such as to 69 or even 70.
Kirsty Anderson, retirement specialist at the wealth manager Quilter, says the review will be “politically sensitive”.
She comments: “Accelerating the rise to 68 may be necessary to protect sustainability, but must be justified with updated life expectancy data and a clear understanding of regional disparities.”
Damon Hopkins, head of DC workplace savings at the consultancy Broadstone, calls the launch of the State Pension Age Review a “necessary step” and says he wouldn’t be surprised to see an acceleration applied to the increase of the age.
“The combination of an ageing population and the huge fiscal cost of the state pension would suggest that a change is inevitable. A lower or later state pension would, of course, double down the need for reform in the private savings landscape,” he notes.
The state pension triple lock, which guarantees the state pension is uprated annually by inflation, earnings or 2.5% (whichever is highest), is forecast to cost a massive £15.5 billion a year by 2030, according to the Office for Budget Responsibility.
Lily Megson-Harvey, policy director at My Pension Expert, says the State Pension Age Review must “carefully consider the impact that raising the age further could have on millions of savers and how to help people engage with their pension options”.
She notes: “Not everyone can simply work for longer. It could also disproportionately impact those who are already struggling to save enough and often rely more heavily on the state pension for financial security in retirement.”
