This August 12.63 million people received a UK state pension payment; 120,000 less than a year ago and 300,000 less than two years ago. This is mainly the result of the rise in the qualifying age; in 2010 it was 60 for women, and 65 for men. Today it’s 65 years for both men and women. Further rises are ahead; in 2020 the qualifying age will be 66 and in 2028 it will rise again to 67.
It’s clear that in the first wave of rises women born in the 1950s bore the full brunt of the new legislation. Although the changes were well publicised, many women felt caught out and didn’t plan ahead. As a result many were forced to stay in paid work for longer than they expected to, or experienced a significant loss of income.
Other changes to the system are impacting the older generation. For example until May 2019, Pension Credit – a generous top-up payment – was available if you were in a couple where one of you was above and one below state pension age. Now if either of you are working age you won’t be eligible for this or any other means-tested benefits.
The reason for the changes is the result of a single, yet obvious, issue; we are living longer. As a result the ratio of younger people (who fund the state pension through National Insurance contributions) to older people is decreasing. Plans are afoot to raise the age to 68 sometime between 2037 and 2039. The figures speak for themselves – the government has estimated that bringing forward these plans to 2030 would save a staggering £74 billion. A recent proposal from a right wing think-tank included radical plans which would see UK state pension age increasing to 75 within 15 years.
Thankfully the government has confirmed it would aim to give at least 10 years notice to those affected by changes to their state pension age. Despite this the social impact of continuing rises could be significant, and there certainly would need to be consideration to supporting older people in work through re-training and flexible working.
What is clear is that it will be more important than ever to consider a robust retirement plan.
To discuss your personal circumstances and plans for the future please get in touch.
Julian Broom, Chief Investment Officer firstname.lastname@example.org