Increasing the State Pension age has always been a lever the government can pull to reduce costs.
In recent years, the State Pension age was made the same for men and women at age 65. It was then hiked to 66 in 2020. By the end of this decade, it’s expected to be 67, and then 68 by the mid-2040s.
So is a higher State Pension age on the horizon?
A recent report from the International Longevity Centre (ILC) said the government needs to go further and the State Pension age will need to increase to 71 by 2050.
This could throw a spanner in the works for many people’s retirement planning. Even potentially forcing them to work longer than expected.
The findings are surprising as a recent government review into the State Pension age chose not to accelerate the transition to age 68. This was on the basis that the increases in people living longer that fuelled previous hikes had slowed.
The ILC’s findings might only be a recommendation, but they’re unsettling to say the least.
Their reasoning is that such a shift would support the old age dependency ratio – this is the number of working-age adults (15-64) compared to retired people.
The UK, like other major economies, has a rapidly expanding ageing population that’s being supported by a shrinking working population. The growing financial burden of paying for the State Pension will therefore be shouldered by fewer people.
The study shows that in the year 2000, the UK had around five workers per retiree - a ratio of 20%. But by 2050, assuming a state pension age of 65, this is projected to rise to 50% - meaning just one worker per retiree.
Shifting the State Pension age to 71 would maintain the status quo of workers to pensioners.
The report also stated that if the definition of working age was shifted slightly, starting at age 20 to account for years in higher education, the State Pension age might need to hit 70 plus as early as 2040.
What can you do about it?
The simplest solution would be that we work longer to close the gap. However, it’s not that simple – the reality is that many will be unable to keep working into their 70s.
The ILC research shows that by 70, only half of all adults are disability-free and able to work. Unless policies are rolled out to tackle the growing issue of preventable ill health, then we’ll need to contribute significantly more to our pensions to bridge the gap.
The report’s only making recommendations and it isn’t government policy, but it highlights the challenges around setting State Pension age.
Currently, we don’t know whether the slowing in longevity seen around the pandemic will continue, but it’s likely we’ll see State Pension age increases in the coming years.
This article isn’t personal advice. If you’re not sure what to do, ask for financial advice.
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