Will Labour change the State Pension age?

With the election decided, one of the more electorally sensitive issues is likely to emerge in the months ahead: the State Pension age.

Currently 66 for both men and women, it will steadily rise to 68 by 2044-46. So those born after April 1977 will be affected.

However, the plans may change. 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. Consider, for instance, the violent pensions protests that have repeatedly erupted in France and the Russian demonstrations of 2018.

The reason this issue may return to the headlines in the UK in the coming months is because a decision to accelerate the rises was delayed ahead of the election but will need to be dealt with imminently.

What decisions have been made on UK State Pension ages?

The government has legislated for an increase from 66 to 67 in 2026-28 and to 68 in 2044-46. However, the timing of the rise to 68 is in doubt and will be looked at by an independent review after the next election.

These reviews are held each parliament and come back with recommendations which the government accepts, rejects, or comments on. The 2017 review suggested the rise to 68 should be in 2037-39. The 2022 review recommended a slower increase to 68, in 2041-43, and it mooted a possible rise to 69 in 2046-48. The government acknowledged the recommendations but delayed the decision, promising to hold another review within two years of the next parliament.

Those most affected:

• The rise to 67 affects those born on or after 5 April 1960.
• The rise to 68 (between 2044 and 2046) affects those born on or after 5 April 1977.

It’s worth noting a suggestion in the 2017 review that the rise to 68 should be brought forward to 2037-39, which would affect those born between 6 April 1970 and 5 April 1978.

Could it rise even faster?

Various think-tanks have warned about the unaffordability of the State Pension. The latest came earlier this year from the International Longevity Centre. It suggested the State Pension age would have to rise to 70 or 71 by 2050 to remain affordable.

The ILC warned of ‘widening demographic imbalances’ that would heap pressure on government finances. It also highlighted that younger people's lack the savings and assets that their parents and grandparents had. In 2010, those under 40 held just £7.53 of every £100 of wealth. Over the past decade, this has fallen significantly to only £3.98, its analysis showed.

What is the process for deciding State Pension ages?

A previous idea to automatically link the pension ages to life expectancy was dropped a decade ago. Instead, it was decided that independent reviews would be held each parliament and make recommendations, with the government offering a response the following year.

The whole process is underpinned by some broadly agreed aims:

• That a third of adult life should be spent in retirement.
• That State Pension costs should not exceed 6% of GDP.
• People should be told 10 years in advance of any changes.

Reviews were subsequently held in 2017 and 2022.

Is the State Pension affordable?

When the pension was introduced in 1909, it applied to people from age 70. But average life expectancy from birth was just 52. Between 1951 and 2020, life expectancy increased by 10 years. It is projected to rise by another four years by 2070. 

While longer lifespans are something to celebrate, they come with additional state costs.

The ‘triple lock’ is a further complication. 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 past decade. The bulge in Baby Boomers reaching retirement further increases the cost pressure.

The Office for Budget Responsibility expects the cost of the State Pension as a percentage of GDP to rise from 4.8% to 8.1% by 2071. The stated aim has been to keep it below 6%, a level it would breach somewhere in the late 2040s (see table).

The primary ways to mitigate this are either slower rises in the State Pension, which would involve watering down or abandoning the triple lock, or to increase the age of State Pension eligibility.

^{Source: Office for Budget Responsibility, 2023}

How to respond to rising pension ages

If retirement is a way off, your clients still have time to take control of their own pension age. Time is a powerful weapon and the single biggest factor that determines the growth of money - the longer, the better, although of course there are no guarantees.

A company pension is a good place to start. Many employers will match or part-match contributions. Pensions are the best vehicle because of the tax breaks. Most people won’t have to pay tax on contributions made from pay.

Private pensions and SIPPs (self-invested pensions) have the same advantage of escaping income tax on contributions, with the same generous annual limit of £60,000 for most people.

Bear in mind that there is also a NMPA (normal minimum pension age) - the age at which clients are allowed to access money in a company pension or SIPP. This is expected to remain fixed at 10 years below the State Pension age, as has largely been the case since a raft of rule changes in 2007. The government has said this private pension age will rise from 55 to 57 on 6 April 2028.

How does the change to NMPA affect your clients?

If a client is looking to take their pension before age 57, their date of birth determines how the NMPA (Normal minimum pension age) affects them.