Yahoo Finance State pension shake up: what everyone under 50 needs to know
For many the state pension will constitute the biggest part of their retirement income. For even more, it will be the most valuable perk paid by the state – with the cost of replacing similar levels of income costing hundreds of thousands of pounds on the open market. But is it dependable?
Last week the Government announced further changes to the state pension, meaning that for almost six million – now in their forties – there will be a longer wait.
The changes so far
The state pension age has barely moved since World War II. Between 1940 and 2010 there were no changes to state pension age at all: it stayed at 60 for women and 65 for men.
But as a result of changes in the 1995 Pensions Act, this was increased to 65 for women, with the changes phased in between 2010 and 2020.
The coalition Government, in 2011, decided to accelerate the changes, so that women saw their pension age increase to 65 between April 2016 and November 2018. At the same time, plans were revealed to equalise the age at 66 from April 2020.
This means that under the previous plans anyone who was born after April 6, 1978, faced a state pension age of 68. But the new plans, announced last week, mean that those born since April 6, 1970, and up to April 5, 1978, will be included as well – both men and women. Those currently under the age of 39 will have to wait to see what their state pension age will be.
These latest changes affect younger generations who are in even greater need of the state pension, as many generous “final salary”, or “defined benefit”, pension schemes have closed, shifting more of the burden of saving for retirement from employers to employees.
Graham Vidler, of lobby group the Pensions and Lifetime Savings Association, described those in their late 30s and 40s as the “sandwich generation”.
“This group are also those most at risk of inadequate private saving – they have not had the same access to final salary pension schemes as their parents, and are too old to enjoy the full benefits of automatic enrolment that their children will see,” he said.
It also comes as the Conservative Government has U-turned on an election promise to end the triple lock. Jon Greer, head of retirement policy at Old Mutual Wealth, said: “The Conservatives had planned to end the triple lock, but conceded it in their negotiations with the DUP.
“So on the one hand they are maintaining state pension increases for today’s retirees, while at the same time telling people age 47 and under that they will have to work longer before receiving their state pension.”
What’s gone wrong
When the coalition Government ramped up the retirement age changes, they were accused of not giving women enough time to prepare and not communicating the changes well enough to those affected. This bred the “WASPI “campaign – Women Against State Pension Inequality.
This generation of women, who saw their pension age rise from 60 to 64, 65 or 66, say that they face financial hardship as they didn’t have enough time to make alternative plans. The cut-off points seemed unfair to many, too, with friends just a year younger getting to retire more than three years earlier.
Will the goalposts move yet again?
One area for concern is that the Government said it will not pass law on these changes until 2023, meaning that while the proposals are there, the legislative can has been kicked down the road for a future government to deal with.
Under today’s fragile leadership the laws might not be passed. Labour has been opposed to pension age increases, and a current slim Tory majority might mean it would fail.
Other countries provide alarming examples of how state pension planning can go awry, causing damage to economies and even inflaming unrest. Most experts in long term savings – and public finance management – are eager for decisions such as these to be removed from a party-political context.
Brazil is one example of a generous – but failing – state pension system which is having an adverse impact on the public purse.
Currently everyone has the right to retire in their early to mid-50s, but the Brazilian government is trying to raise this to 65 for men and 62 for women – in the face of considerable public resistance.
Whether Britain’s state pension age increases further depends partly on how life expectancy changes in that time. In fact, the latest figures show that life expectancy could be falling, after a period of consistent multi-year increases.
Tom McPhail, head of policy at broker Hargreaves Lansdown, said: “For anyone yet to reach age 47 there is still time to adjust their retirement plans by looking to contribute more or look to change where they invest.”
He is calling for an independent body to oversee changes.
“We need a national savings strategy to help people save and invest for their future,” he said. “A good starting point would be for the government to look at a savings commission.”
