The government will save £5 billion a year by increasing the state pension age for both men and women to 66 by 2020.
The move announced by Chancellor George Osborne in today’s comprehensive spending review will free up cash to create a more generous state pension.
Currently the female state pension age of 60 is rising by six months a year, from 2016 it will be accelerated so it reaches 65 by 2018. From December 2018 the state pension age for both men and women will start to increase from 65 to 66 by April 2020.
Under the previous Labour government the state pension age was to rise to 66 in 2036 and 68 by 2046.
Catherine Richmond, employment partner at law firm Nabarro said: “We’re an ageing population and so the government is doing all it can to encourage us all to work for longer and pay our taxes for longer. Raising the state pension age in 2020 far more quickly than planned, shows how urgent the government thinks the economic case has become.
“However, people who have not made their own pension arrangements will fall through the gap and may be left with no source of state pension support if employers persist in trying to force employees to retire from their jobs earlier than age 66. For many people it is more likely to become financially imperative that they keep on working throughout their sixties and so there will be more and more weight behind the campaign to scrap forced retirement in all but the most narrow of circumstances.”
Neil Gough, client services director at Creative Benefit Solutions, said: “What has not been addressed is how fast the state pension age will rise from here onwards. The public and industry is expecting it to happen and this announcement does nothing to answer that question for people currently under age 56.”
Gough also said that the change in the state pension do not encourage people to save for their retirement.
Ian Naismith, head of pensions market development at Scottish Widows, said: “Increases to state pension age are unavoidable as average life expectancy rises, and are preferable to cuts in the level of state pensions. They also send out an important message that the traditional retirement ages should no longer mark the end of our working lives. We are pleased that the Government has allowed a suitable period before the changes to previously planned increases start, while retaining the plans to align male and female state pension ages by 2020. As always, it is important that the change is clearly communicated to consumers as soon as possible to give them time to adjust their retirement plans.” ††††
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Joanne Segars, NAPF Chief Executive, said: “Increases in the state pension age are inevitable, but they must be handled fairly. People need time to plan and adapt.
“These changes will have a particular impact on women, especially those in their late 50s, who may have to review their retirement plans.
“The trade-off for a later retirement must be a better state pension, particularly as the UK’s is the worst in Europe.
“The confirmation of the ‘triple lock’ guarantee is welcome but we need deeper reform, and a simpler and more generous foundation state pension.
“The NAPF’s proposals for a new, universal Foundation Pension of £8,000 a year from 2017 are affordable and fair. The Government must act swiftly to bring this about.”
Rash Bhabra, head of corporate consulting at Towers Watson, said: “The biggest losers from today’s announcement are some of the women born around 1954. A woman born on 5 April 1953 will still be able to claim her State Pension when she is just 62 years, 11 months and one day old. A woman born a year and a day later will have to wait until she is 66. The extra three years of income could be worth more than £15,000 just looking at the Basic State Pension and could be much higher for women with substantial entitlements to SERPS or the State Second Pension. It may have been fairer to start the changes earlier but implement them more gradually.
“Before the election, the new Liberal Democrat Pensions Minister said he thought it would be illegal to widen the gap between male and female State Pension Age, even temporarily, as the Coalition originally proposed. Has the policy changed because the lawyers agreed with him? Either way, some men born between 1951 and 1953 have just gained thousands of pounds, compared to the proposal in the coalition agreement, while women born a few years later have lost money.
“People are now expected to live almost two years longer on average than they were when the last Government said the State Pension Age should rise to 66 by 2026. Even without the deterioration in the public finances, later retirement would have been on the cards. People whose State Pension Age rises from 65 to 66 can still expect to receive an income from the taxpayer for longer than they would have done.”