The state pension age currently stands at age 66 for both men and women, with the government legislating for an increase from age 66 to 67 in 2026-28 and to 68 by 2044-46
Although a decision to accelerate rises in the state pension age (SPA) was delayed ahead of the election, Fidelity International has warned that it will need to be dealt with “imminently” by the new government.
The state pension age currently stands at age 66 for both men and women, with the government legislating for an increase from age 66 to 67 in 2026-28 and to 68 by 2044-46.
Whilst the 2022 review recommended a slower increase to 68 in 2041-43, also proposing a possible increase to 69 in 2046-48, the government at the time delayed the decision, promising to hold another review within two years of the next parliament.
Given this, Fidelity International director, Andrew Oxlade, said that the timing of the rise to 68 is in doubt, warning that the plans may change, particularly given the sensitivities that can surround SPA changes.
Retirement age changes are unavoidably emotive. It is surprising, in fact, that legislation in the UK has been passed to increase the age in recent decades with little backlash, he added.
However, Oxlade admitted that various think tanks have warned about the unaffordability of the state pension, with analysis from the International Longevity Centre (ILC) suggesting that the state pension age would have to rise to 70 or 71 by 2050 to remain affordable.
In its report, the ILC warned that “widening demographic imbalances” would heap pressure on government finances, suggesting that younger people lack the savings and assets their parents and grandparents had.
In particular, the ILC found that, in 2010, those under 40 held just £7.53 of every £100 of wealth, while over the past decade this has declined significantly to £3.98.
An ageing population has also had an impact, as Oxlade acknowledged that while longer lifespans are something to celebrate, they come with additional state costs.
The triple lock is a further complication, he added. It guarantees a minimum rise of 2.5% each year or the higher of inflation or wages.
As a result, state pension payments have grown relatively quickly over the last decade. The surge in Baby Boomers reaching retirement further increases the cost pressure, he said.
Indeed, Oxlade pointed out that estimates from the OBR suggest that the cost of the state pension as a percentage of GDP will rise from 4.8% to 8.1% by 2071.
However, he stressed that a key aim when setting the state pension age is the need to keep state pension costs below 6%, a level it would breach somewhere in the late 2040s.