Gov increases state pension age as life expectancy halts

The government has revealed that they plan to increase the state pension age to 68 between the years 2037 and 2039, affecting anyone currently 46 years-old or younger[1]. Not only is this rise set to take affect 7-years earlier than expected, it comes as the Office for National Statistics reveals that the growth in life expectancy in the UK has halted, standing at 79.1 years for men and 82.8 years for women[2].

What this means in reality

If you’re 46 or under, you will have to work an additional 2 years before you can claim your pension if you’re a man and 4 more years and 3 months if you’re a woman.

Currently, the state pension age is 65 for men and 63 and 9 months for women, although by November 2018 the state pension age for females will also increase to 65, with the exact date you can claim depending on the month you were born.

Between October 2018 and October 2020, both men and women will see their state pension age creep up to 66, before rising to 67 between 2026 and 2028 and then settling at 68 between 2037 and 2039.

Under the expected changes, a man living to the average age of life expectancy will have just 11.1 years of retirement, while a woman will have 14.8 years.

Of course, many people will be able to draw on their personal pensions before they reach 68 but this won’t be an option for everyone.

Why is it happening?

Ultimately, it all comes down to cost. There have been lots of conversations around whether or not the state pension is actually affordable, with some suggesting means testing it or scrapping it entirely for the more affluent among us. This is because Britain has an aging population and between 2017 and 2042 the number of people over the current state pension age is expected to grow by a third[3].

Are people on-board with it?

As you might expect, plans to hike to state pension age have received a pretty frosty reception, especially from organisations like Age UK and the Centre for Ageing Better.

Caroline Abrahams from Age UK said: “In bringing forward a rise in State Pension age by seven years, the Government is picking the pockets of everyone in their late 40s and younger, despite there being no objective case in Age UK’s view to support it at this point in time.

“Indeed, it is astonishing that this is being announced the day after new authoritative research suggested that the long term improvement in life expectancy is stalling.”[4]

Dr Anna Dixon, chief executive of the Centre for Ageing Better, also has reservations, stating: “Inequalities in life expectancy and healthy life expectancy mean that many people will find it impossible to work until State Pension Age, and without additional support or mitigating policies from Government will face financial difficulties and hardship in later years.”[5]

What can be done?

Planning for the future is always important, no matter when you’re planning to retire, but if you’re 46 or younger and don’t want to work until you’re 68, it’s now going to be more vital than ever.

You should take time looking at the options available to you, whether that’s saving through a pension (or multiple) or investing in assets, such as property. A financial advisor will help you look at your situation and decide what option will work best for you so you can support yourself in retirement.

It’s also good practice to keep on top of your finances by regularly checking your credit report. Not only does this give you a 360 view of your accounts, it will enable you to get yourself into as strong a financial position as possible if you plan on using credit as part of your financial plan.

[1] http://www.dailymail.co.uk/money/pensions/article-4711326/State-pension-age-rise-68-2039-fair.html and https://www.theguardian.com/money/2017/jul/19/state-pension-age-to-increase-seven-years-earlier-than-planned

[2] https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/lifeexpectancies/bulletins/nationallifetablesunitedkingdom/20132015

[3] https://www.gov.uk/government/news/new-timetable-for-state-pension-changes-to-maintain-fair-and-sustainable-pension

[4] http://www.ageuk.org.uk/latest-news/state-pension-age-increase-brought-forward/

[5] https://www.ageing-better.org.uk/news/centre-ageing-better-responds-government-plans-increase-state-pension-age/