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Why millions of 50-somethings will lose £10,000

Pension
Pension

Millions of people in their 50s will lose £10,000 if the Government brings forward a rise in the state pension age to the mid-2030s.

It is currently due to climb to 67 by 2028 and 68 by 2039, but ministers are considering plans to bring in the second increase as early as 2033 – a move that would save the Exchequer billions of pounds.

The policy shift would see taxpayers missing a year’s worth of pension payments – worth £10,600 from next April – and leave those unfit to work reliant on ­working-age benefits.

Jeremy Hunt, the Chancellor, announced in the Autumn Statement two weeks ago that a review of the state pension age would be published by early 2023.

Sir Steve Webb, a former pensions minister, said households were being unfairly penalised by a “broke” Treasury. Another critic said over‑50s were having their “pockets picked” by Mr Hunt.

For every year that the pension age rise is brought forward, the Government is estimated to save around £10bn. If the increase to 68 is introduced by 2033 – and at least 10 years’ notice is given before a change – it would mean a £60bn windfall.

The move would also affect those on private pensions, since the age at which money can be taken from them would probably also rise to 58. Some of those who planned to retire in their 50s would therefore have to work an extra year.
Around 700,000 to 800,000 people retire every year, so raising the state pension age by 2033 would hit more than four million, currently aged between 51 and 57.

“Multi-billion-pound savings for the Government are multi-billion-pound losses for individuals,” Sir Steve said.

He added: “The frustrating thing is that the plan was for there to be a formula, so you wouldn’t just have the Treasury saying, ‘Oh, we’re broke, we’ll just raise pension ages.’ There was meant to be a principle – if we’re living longer the pension age goes up and if we’re not living longer the pension age doesn’t go up. Basically, when the formula gives the wrong answer they’ve ripped up the formula.”

In 2017 the Department for Work & Pensions recommended lifting the state pension age to 68 by 2039, predicting that life expectancy would follow its century-long trend of steady increases. That move could now be brought forward several years, even though life expectancy has stalled or declined as a result of the pandemic. It was virtually unchanged for women between 2015‑17 and 2018‑20, while men saw a fall for the first time on record to 79 years.

‘The prosperous will work but the poor will suffer’

There are also fears that a faster rise in the pension age would hit poorer households the hardest. For those who survive into their late-90s, waiting an extra year means losing about 3pc of their lifetime pension.

Those in more deprived areas, who might live only a decade in retirement, stand to lose a 10th of their pension income.

According to the Institute for Fiscal Studies, the think tank, raising the pension age to 66 by late 2020 left around a quarter of would-be pensioners in severe poverty. This is because many 65-year-olds had to depend on benefits as they were not healthy enough to work.

“The relatively prosperous and healthy who enjoy what they do will just work another year and get on with it,” Sir Steve said. “But the folk who are struggling to get by, who are maybe on sickness benefits or something, they’ll be thousands of pounds down. Another year on ­working-age benefits is another year of very meagre income indeed. And they will be very heavily concentrated in deprived urban areas.”

The effect on poverty rates is likely to be more severe than with the pension age increase to 66, he added, because fewer people make it to 68 in good health.

In the poorest parts of Britain, healthy life expectancy is 52.3 for men and 51.9 for women – almost 20 years lower than for those in the wealthiest areas, according to the Office for National Statistics. As a result, the worst-off could spend around a decade and a half relying on working-age benefits as they wait for a pension to pull them out of poverty. The latest estimates suggest that 1.3 million over-50s have been forced out of the labour market by long-term sickness. Of those, 183,000 left in the past three years.

“We see no justification for bringing forward increases in the state pension age at present,” said Caroline Abrahams of Age UK, the charity. “Some of today’s over-50s are either struggling to work or completely unable to do so due to ill health, caring responsibilities or ageism in the labour market, leaving them in a perilous position.

“The cost would fall disproportionately on financially squeezed middle-aged men and women who need a helping hand and some hope for the future, not having their pockets picked by the Exchequer.”

A DWP spokesman said: “The Government is required by law to regularly review the state pension age. 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.”