Yahoo Finance Can you work into your 70s if the state pension age goes up?
The state pension age is a key date for our retirements. Even if you have a decent amount in your private pensions, most people depend at least to some extent on the state pension, and it remains the backbone of our financial planning.
However, imagine being told that you may need to wait several years longer to get the state pension than you thought.
The state pension age is currently 66 but recent research from the International Longevity Centre (ILC) suggests if it is to remain sustainable long term, then it needs to be paid out from age 71 from 2050.
For context, the state pension age is currently only scheduled to rise to 68 in the mid-2040s so the shift to 71 would be quite a leap and would risk undermining the retirement plans of millions.
So why such a shift in the state pension age?
The ILC argues that current demographics are behind the need to increase the state pension age. The state pensions paid out today are funded by the current working population and increasing longevity and falling birth rates mean we have a smaller group of working-age people having to pay the state pensions of an ever-growing older population.
There are several levers the government can pull to avoid overwhelming the younger generation and increasing the state pension age is one that the government has called upon before.
The state pension age used to be 60 for women and 65 for men before being equalised in 2018. It moved to 66 in 2020 and is expected to move up to 67 this decade before hitting 68 in the mid-2040s. However, there’s a lot of debate as to whether it has moved far enough for now. We’ve seen longevity increase in recent years which justified recent changes, but the data is now showing these improvements are slowing and may even start to go into reverse.
Can we work into our 70s?
Added to this is the very real question of whether we can reasonably expect people to work into their late 60s and even early 70s.
Just because we are living longer doesn’t necessarily mean we are living in perfect health and the reality is that many people simply won’t be able to work that long.
Pushing the state pension age back would only mean people would be forced to draw down on their private pensions earlier in a bid to pad out their income or we would see more older people who are unable to work needing to claim benefits.
It's important to say that this report is only a suggestion as to the future direction of the state pension age — it certainly isn’t government policy.
It’s also worth noting that only last year the government reviewed the state pension age and opted against accelerating the shift to age 68. Whoever wins the next election will really need to grasp this issue as it’s vital we have more certainty around the state pension.
An overarching review of the system is vital if people are to plan their retirements with more confidence.
What can you do?
Given the pressure the state pension is under, it’s worth keeping the potential for future age increases in mind when planning your retirement.
You may find that you are willing and able to keep working or you could perhaps work part time in the years leading up to receiving the state pension. But you need to bear in mind you may develop health issues that could prevent you from doing so.
Taking every opportunity to boost your pension contributions will enable you to build up a pension that you can take income from until you can claim state pension. Increasing contributions every time you get a pay rise or new role is a good way of increasing your contributions in a relatively pain-free way.
You may also choose to build up savings in another vehicle such as a Lifetime ISA or other ISA that you can draw an income from during the years between leaving work and drawing a state pension so you can give your private pension more time to grow.
Watch: Is a UK state pension enough to survive on in retirement?
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