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State pension age set to rise to 68 in Treasury’s ‘big bazooka’ cash grab

State pension
State pension

The pension age will rise to 68 a few years earlier than planned, under government proposals.

The age at which Britons receive their state pension is set to increase to 67 by 2028 and 68 by 2039, but ministers want to pull that forward to the mid-2030s.

It would mean that people currently in their mid-50s having to wait a year longer than expected before receiving their pension, potentially disrupting scores of retirement plans.

The move will raise the Treasury tens of billions of pounds and has been labelled a “big bazooka” as officials look to secure the long-term finances of the country.

It paves the way for people starting work to see their retirement delayed until they are in their 70s.

Supporters argued that it would be justified to boost intergenerational fairness, given that life expectancy in the past decade has risen, and would help fund heightened public spending levels.

However, critics are likely to question whether the move will cause too much disruption to those already planning for retirement.

Furthermore, it risks an elderly voter backlash before the election.

There is growing interest in Whitehall in the idea of automatically linking changes in the pension age to life expectancy, with a belief that it could help depoliticise the issue.

The concept has been explored by ministers and officials and could see a link pinned on people spending about a third of their life retired, although thinking remains fluid.

The Telegraph has talked to half a dozen current and former government figures involved in discussions in recent months about speeding up the pension age increase.

While no final decisions have been made, it is clear that successive Tory governments have bought into the argument the pension age should be set to 68 earlier than 2039.

Liz Truss was so supportive of the push that she called it a “silver bullet”. She initially wanted to announce it in her mini-Budget, according to sources involved, before the move was delayed.

The age at which people get their state pension has been a controversial topic for the Conservatives since they took office in 2010, especially under David Cameron’s premiership.

The drive to equalise when men and women received their pensions triggered a fierce backlash from the Women Against State Pension Inequality group, which became known as the “Waspi women”.

Liz Truss, Conservatives, state pension - Reuters/Hannah McKay
Liz Truss, Conservatives, state pension - Reuters/Hannah McKay

The pension age was 65 for men and women in 2018. It is gradually rising to 67 by 2028. Within the Government, there is an ongoing debate about when that should reach 68.

Under the current law, it will hit 68 by 2046, although existing government policy is that it should happen by 2039. However, ministers are considering making the change even earlier.

Ministers and officials involved in the decision making under Boris Johnson, Ms Truss and now Rishi Sunak have been inclined to pull the date forwards, according to sources familiar with discussions.

Multiple current and former government figures told The Telegraph that a date of the mid-2030s was widely favoured for the pension age becoming 68. However, it could be even sooner.

Ministers want to leave at least 10 years between the time that the policy decision is legislated and when it takes effect, so it could be as early as 2033.

The Treasury savings would be major. If the state pension age rises to 68 a year earlier than planned, then about £10 billion would be saved, according to analysis by pension experts.

LCP, a pensions consultancy, estimated that around £8 billion would be saved in state pension payments and a further £1.3 billion would be made in taxes on extra earnings, although that could be higher.

George Osborne, former chancellor, state pension - Dave Benett/Getty Images
George Osborne, former chancellor, state pension - Dave Benett/Getty Images

George Osborne, the former Tory chancellor who oversaw a rise in pension ages, once remarked about how relatively easy the revenue-generating move was in political terms.

“I’ve found it one of the less controversial things we’ve done and probably saved more money than anything else we’ve done,” he was quoted as saying in 2017.

There is currently a formal process for recommendations that sees two reviews submitted to the Department for Work and Pensions (DWP) before a decision with the Treasury.

One independent review, led by Baroness Neville-Rolfe, has been handed in. Another report, written by the Government Actuary’s Department, was also expected to be submitted this autumn.

It was announced in the Autumn Statement that the review of the state pension age will be published in “early 2023”. Decisions could also be made then.

Announcing an increase in the pension age earlier than expected at the Budget next spring would allow the Treasury to argue that it was taking hard decisions to improve finances.

That may help reassure the markets about this administration’s fiscal prudence, although it would not help balance the books in the near term, as the financial benefit only comes in the 2030s.

However, legislating for a quicker age rise could be tricky, given that pensioners are a key voting bloc for the Tories, MPs are split after a year of in-fighting and the next election is looming.

Sir Steve Webb, a partner at LCP who was the pensions minister under Mr Cameron, said: “It is tempting for the Treasury to see increases in state pension ages as ‘easy money’, with tens of billions of pounds of savings available.

“But an aggressive schedule of pension age rises is simply not justifiable based on the latest evidence on life expectancies. The improvements in life expectancy, which were expected when this issue was last reviewed, have simply not materialised.

“If pension ages are hiked, we risk seeing many thousands of people spending the final years of their working life on benefits as their health is not good enough to keep them working into their late 60s.

“In some more deprived parts of the country, it is typical for people to be in poor health a decade before current pension ages. Before pension ages are hiked again, much more needs to be done to tackle the vast inequalities across the country in health outcomes and in life expectancies.”

A DWP spokesman said: “No decision has been taken on changes to the state pension age. The Government is required by law to regularly review the state pension age and the second state pension age review is currently considering, based on a wide range of evidence including latest life expectancy data and two independent reports, whether the rules around state pension age remain appropriate.

“The review will be published in early 2023.”