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What raising the state retirement age to 68 means for your pension pot

Retirement EMBARGOED TO 0001 FRIDAY JANUARY 21 File photo dated 03/04/16 of an elderly woman counting loose change. The Department for Work and Pensions (DWP) estimates it has underpaid 134,000 pensioners, mostly women, over �1 billion of their state pension entitlement, with some errors dating as far back as 1985. Issue date: Friday January 21, 2022.
Retirement: Having to wait longer for your state pension could have a huge impact on millions of people. Photo: PA

The UK state retirement age could rise to 68 by the end of the 2030s according to several reports, in what would prove costly for millions of Britons who will need to work for longer before becoming entitled to the state pension.

Under the current law, the state pension age will rise from 66 to 67 by 2028, and then 68 between 2044 and 2046. However, the government is considering making the change even earlier, with some reports citing a rise in state pension age to 68 by 2034.

Although nothing has been officially announced, the move would mean lost year of payment of £16,902 after inflation, according to calculations done by Interactive Investor.

Having to wait longer for your state pension could have a huge impact on millions of people, many of whom are struggling financially.

Bringing forward the state pension age increase from 68 by 2046 to 68 by 2034 could mean a year lost full state pension payment of £13,594 for workers aged 57. This would rise to £16,902 for workers aged 46, Interactive Investor warned.

Read more: Poorest and elderly worst hit as income inequality rises

Alice Guy, personal finance editor at Interactive Investor, said: “The planned rise in state pension age will leave more people facing poverty in retirement and disproportionately affects carers and those with health problems.

“The changes mean that workers who are currently 57 or younger won’t get their state pension until they reach 68, rather than 67 as planned.”

Someone with a £100,000 pension pot who retires at 67 will see their money running out two years earlier, when they reach 79 years old rather than 81 years old.

“That’s because they will need to withdraw an extra £10,600 from their pension pot to tide them over until they get the state pension at 68,” Guy added.

A faster rise would put millions of people approaching the state pension age at risk, Age UK has warned. It found more than 3.5 million people aged between 50 and 64 are classed as economically inactive, and of these, 1.3 million are sick and half a million are caring for family.

Myron Jobson, senior personal finance analyst at Interactive Investor, said: “Pushing back the state pension age would come as a kick in the teeth to workers who diligently paid into the welfare system under the assumption that the state pension age won’t move much – if at all.

“Our calculations show that bringing forward the state pension age from 68 by 2046 to 68 by 2034 could mean a year lost full state pension payment of £13,594 for workers aged 57 rising to £16,902 for workers aged 46.

“This is by no means a small sum and could force savers to tweak their retirement plans to maintain course for a comfortable retirement.”

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The government’s “triple lock” on the state pension ⁠— which promises to increase the payment every spring in line with the highest of the previous September’s inflation, wage growth or 2.5% ⁠— is expected to cost the Treasury an additional £11bn this April.

France is pushing to raise the state pension age from 62 to 64 years of age, leading to a wave of strikes.

President Emmanuel Macron’s move would save the French government an initial £15.5bn per year.

Interactive Investor’s calculations factor in the new full state pension of £203.85 per week, which is set to kick in by April 2023.

It also assumes an inflation-linked uprating of 5.2% ⁠— as forecasted by the Bank of England ⁠— and 2% inflation a year thereafter in line with the central bank’s target inflation rate.

According to reports, chancellor Jeremy Hunt is facing opposition from work and pensions boss Mel Stride, who is pushing for a 2042 pensions age increase ⁠— arguing that predicted increases in life expectancy have failed to materialise.

Watch: Is a UK state pension enough to survive on in retirement?