How an Earlier Rise in the State Pension Age Could Affect You

If you’re one of the many workers who long for the day you can retire, the bad news is that you may now have to work even longer than expected.

While the state pension age (SPA) in the UK is currently due to rise to 68 between 2044 and 2046, The Sun recently reported that the Treasury might look to make the change by the end of the 2030s, and perhaps as early as 2035.

“Based on what looked like well-briefed stories, the government is apparently considering bringing forward the increase in the state pension age to 68 by seven years at least,” says Tom Selby, head of retirement policy at investment platform AJ Bell. “Whether or not this happens will become clear in the coming months, but savers should be braced for a world where the state pays them less in retirement.”

What is the situation now?

Currently, the earliest you can claim the state pension is age 66. However, there is legislation already in place for this to gradually increase to age 67 between 2026 and 2028, and gradually rise to age 68 between 2044 and 2046.

While the government has had legislation in place for some time confirming that the SPA will continue rising, the fact that it now appears to want to increase the SPA to age 68 faster than expected is cause for concern.

Who could this affect?

If the state pension is set to form a core part of your retirement provision, you may have little choice but to work later in life until such a time that you can claim it. If you’re outside the workforce, perhaps due to poor health or because you are caring for others, Age UK, a charity which aims to improve the lives of older people, has warned that accelerating the rise in the SPA could have “devastating consequences for millions of people in their 50s and 60s who are already struggling financially”.

Another important factor will be how near or far you are from retirement.

“For those who are already retired or close to retirement, an accelerated rise in the state pension age will not be a concern,” says Jon Greer, head of retirement policy at wealth management firm Quilter.

“This is because the framework for reviewing the state pension age sets out that there should be a minimum of 10 years’ notice for individuals affected by changes so that they can adequately plan. Younger people will feel the impact less as they have longer to plan, but they will still have to plan for a longer working life or save more for their retirement, or a combination of the two.”

Would your SPA be affected?

Exactly who would see their SPA affected will depend on when the rise to age 68 takes place.

If it were to occur between 2037 and 2039, the expectation is that almost anyone born in the 1970s or after will see a rise in the age they can claim the state pension.

But if the rise was to take place earlier in the 2030s, those born towards the second half of the 1960s could see their SPA affected too.

Source: AJ Bell

What can you do to prepare?

If the reported change becomes a reality, you will want to know what you can do to try to limit the effect a faster rise in the SPA might have on your retirement plans. Selby says the choices are simple: work longer, retire on a lower income or save more privately.

“It depends how reliant people are on the state pension,” he elaborates. “Some will be forced to work a bit longer, either full or part-time, in order to bridge the income gap. Others might decide to access their private pension a bit earlier, meaning they will need to spend a bit less money in retirement or risk running out of money earlier.

“The third option is to save more in your private pension, so you can still retire as you planned. It’s important to remember that the state pension, while a valuable foundation, is a benefit and as such is not guaranteed – meaning relying on it to help fund your later years comes with an inherent risk attached.”

If you’re in the age group that could be affected and are steadfast in your desire to retire earlier than 68, you may need to try to fund the financial shortfall until your state pension becomes available. Figures calculated by investment platform Interactive Investor suggest that someone who was planning to retire at age 67 with a private pension worth £100,000 could see their pension fund run dry two years earlier than might be expected, at age 79 rather than 81. This is based on the assumption that their pension investments will grow by 4% and inflation will be 2%.

“Upping contributions to a pension can help make sure that if you do not want to have to wait that extra year to access your state pension then you have enough private pension wealth to bridge the gap,” says Greer. “Alternatively, you may want to save into different savings vehicles, like ISAs, so that you can draw on that before you reach an age when you can get access to the state pension. The most important piece of advice is to take ownership and make a plan; don’t leave it too late.”

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