Twenty years ago, the government set out a proposed timetable for increasing the state pension age to 68.
As a 32-year-old, it galvanised my interest in retirement saving. And I wasn’t alone. I remember that the website I was managing at the time saw a remarkable influx of questions from people younger than me, alarmed by the prospect of such a late retirement date. Broadly, they wanted to know where to start in their 20s so they could retire in their 50s in the 2030s.
Next month, we may learn more about whether that proposal to increase the state pension age to 68 will follow the original timetable – reaching that point by 2046 – or be brought forward. A date in the late 2030s has previously been mooted (see below).
A Pensions Commission was formed last year, tasked with reviewing the current timetable of age changes. An interim report is expected within the next month, with full recommendations to follow in 2027.
It is not a done deal. The Commission will consider many factors. Rises in life expectancy have stalled, and the number of years we spend in good health in retirement has been shrinking. New analysis from the Health Foundation released at the end of April suggested that UK healthy life expectancy has fallen by more than two years over the past decade.
The Commission must also consider ‘fairness’, which raises questions about affordability. The latest population projections from the Office for National Statistics (ONS), also published last week, will inform its thinking. The ONS projects that the number of people of pensionable age will increase by 15%, or 1.8 million, between mid-2024 and mid-2034. And that is despite a planned increase in the state pension age to 67. By then, roughly one in five people will be drawing a state pension. One recommendation from the Commission could be to link state pension ages with life expectancy, as happens in Denmark and the Netherlands, or maybe linked to healthy life expectancy.
Any acceleration would have a dramatic effect on those nearing retirement, although previous commissions have suggested that at least 10 years’ notice should be given for such changes. Bear in mind, too, that there has been an intention to peg the age at which we can access private pensions – currently 55 – at 10 years below the state pension age. That is why it will rise to 57 in the next two years, tracking the increase to 67 for the state pension. Plans for early retirement could be scuppered.
On a more positive note, headlines about later state pension ages may help support the government’s admirable mission to get more people investing.
It certainly has a mountain to climb in persuading Main Street that stock market investing can fund better retirements than cash savings. Data from the UK Economic Accounts analysed by Fidelity suggest that the collective appetite for investing cratered after the dotcom boom and bust 25 years ago and has never fully recovered. The rise in interest rates in recent years has prompted many to double down on the belief that cash is king.