It has recently been reported in the UK media that the government has delayed its response to the two independent reviews into raising the State Pension Age. The Secretary of State was due to publish the report by 7th May 2017 however, as this deadline has been missed and with the fast approaching general election on June 8th, nothing will happen now until after the dust has settled on the political landscape.
The main finding of the independent reviews outlined the requirement for the State Pension Age to increase in order to ensure the State Pension remains affordable. Hardly ground breaking news, however, it is worth noting the different approaches to the proposed changes.
One review, carried out by John Cridland, the former director-general of the Confederation of British Industry (CBI), suggests the State Pension Age should rise to 68 between 2037 and 2039, which follows on from the rise to age 67 already due to take place between 2026 and 2028. This would mean that under normal circumstances, the State Pension Age would not increase by more than one year in any ten-year period.
The report also recommends the triple lock for State Pension should be withdrawn in the next Parliament. Introduced in 2011 by the coalition government, the triple lock guarantees basic state pension will rise by a minimum of either 2.5%, the rate of inflation or average earnings growth, whichever is largest. Before 2011, the state pension rose in line with the retail prices index (RPI) measure of inflation, which was consistently lower than annual rises in earnings or 2.5%.
The other review carried out by the Government Actuary’s Department (GAD) recommends the State Pension Age be increased to 69 between 2040 and 2042 or, if using a slightly different set of assumptions, between 2053 and 2055 with a further increase to 70 at a later date.
Assumptions can obviously prove difficult when forecasting this far forward but it is safe to say we can expect some sort of movement towards a retirement age of 69, even 70, over the next couple of generations.
Both of these reviews make bleak reading if you are depending on state pension to fund all or part of your retirement pans. It seems almost inevitable the State Pension Age will be increased and that depending on the result of the general election, the triple lock could be scrapped, although this would be a highly controversial move by whoever is in Government.
The coming weeks and months will prove interesting as we see the result of the general election, how the findings of these reports are received by government and ultimately, how the changes regarding the State Pension Age will affect us all.
From a retirement planning perspective, having as much private pension provision as possible is going to be the best way for the majority to have options and flexibility regarding their retirement plans. If you would like any information on how this may affect you, please contact Charlotte Stewart, IES Manager (email@example.com) or your usual AAB contact.