Is a state pension age (SPA) of 75 looking more likely?
The state pension age, the age at which you can start to claim your state pension, has been steadily increasing over recent years. The actual age at which you can claim your state pension depends on your gender and when you were born.
The Pensions Advisory Service summarises that The State pension age will rise to 65 for women between 2010 and 2018, and then to 66, 67 and 68 for both men and women. There are plans to change State Pension ages further.
The question of whether the state pension age will rise to 75 was raised in the report Ageing Confidently – Supporting an ageing workforce, released in August 2019 by the Centre for Social Justice (CSJ). However, this question is slightly misleading. A state pension age of 68 is currently pencilled to be phased in between 2037 and 2039. Further legislation will not be introduced until after another SPA review is completed, which, by coincidence, won’t happen until after the next election is due.
The CSJ is not a think tank that regularly makes the headlines, but it does have a high-profile chairman – Iain Duncan Smith, the former Conservative leader and former Secretary of State for Work & Pensions. During that tenure, he pushed through some of the SPA increases outlined above. With this in mind, the statement by the CSJ could be interpreted as kite-flying on behalf of the Conservative government, just as the Institute of Public Policy Research (IPPR) plays a similar role for the Labour Party.
The CSJ’s argument for raising SPA with such haste is financially driven. The report notes that at present there are 28.2 pensioners for every 100 people of working age, but by 2050 this is projected to increase to 48 per 100 – almost one pensioner for each two working-age members of the population. As the state pension system is funded on a pay-as-you-go basis, that jump has serious consequences even before the impact of rising healthcare costs is considered. Raising SPA to 75 by 2035 would keep the ratio at between 20 and 25 per 100.
Such a steep rise in SPA would however be politically problematic as the ongoing protests and resulting court cases about increases in women’s SPA prove. Nearly four million women born during the 1950s have been adversely affected by recent changes in the state pension age. They saw their retirement age raised from 60 (which it sat at in 2010) to as high as 66, and many claim that these changes are unfair because they were not given enough time to prepare for the additional years without a state pension.
However, the CSJ’s quesiton about whether the current state pension ages will continue to be affordable isn’t going away. If nothing else, it’s a reminder that supplementing the state pension with an additional private provision, savings or investments is a surer path to a reliable retirement income.