State pension age could reach 70 under new government reforms
Following the government’s announcement to review whether state pension age should be linked to rising life expectancy, critics have voiced concerns that state pension age could reach at least 70 long before 2060, which was the initial forecast provided by the Office for Budget Responsibility (OBR).
Rising life expectancy has significant financial implications
Martin Parish, area director of Aon Employee Benefits, said: "It is no surprise that this topic continues to receive wide coverage as the UK policy makers struggle to grasp the challenges of the UK pension system. Rising life expectancy has significant financial implications for UK plc and extending state pension age might mitigate some of the financial burden but it is not a long-term solution. Critics are right to be concerned. Do people really want to be working into their 70s, perhaps having spent 50 years in employment? My experience in dealing with pension scheme members and employees would suggest not."
The government’s review will consider whether to change state retirement age from April 2028, at which point, 67 years would be the average retirement age for both men and women. But experts are concerned that state pension age would continue to increase at a much faster rate than previously predicted, with those joining the labour market now and in the future, having to wait until their 70s to receive state pension.
Already, the state pension age has increased gradually from 60 for women and 65 for men, the Guardian reports. In 2018, it will increase on a ‘phased’ basis until ‘equalising’ at 67.
Implications of the government’s review
Commenting on the implications of the government’s review and the concerns raised by financial experts, Labour’s Shadow Work and Pensions Secretary Owen Smith has reportedly said: “People are right to worry that the terms of this review may suggest that the Tory government is set to speed up rises in the state pension age, throwing into chaos the retirement plans of millions of British workers”.
The Daily Mail meanwhile claims that one significant implication of the review could lead to manual workers retiring five years earlier than their white-collar counterparts due to shorter lifespans of those working in blue-collar industries.
Parish continued, "People want a system that is simple and straightforward. Developing layers to qualification will only bring about confusion and the opportunity for manipulation. If we consider the type of employment one has as criteria we could move into regional differences too, as already happens with some annuity pricing. Ultimately, individuals will have to try and put themselves in a position where the state pension is an income top up rather than an income requirement, perhaps using their private pension to sustain their welfare between finishing work and the state pension starting. At least the new pension ‘freedoms’ provide people with the greater flexibility, control and choice to operate their pension scheme as they wish".
The first independent review into state pension age and life expectancy aimed at ‘fairness’ is headed up by former head of CBI, John Cridland and will consider how to make state pension age more ‘sustainable’ for future generations.
This article was provided by Aon Employee Benefits.
