The rising financial pressure of the state pension means it is ‘inevitable’ the state pension age will have to be raised up to 70, an expert has warned.
Costs for the Treasury of funding state pension payments will jump up in just a few months, with payments increasing 4.1% in April in line with the triple lock, which rises either by inflation, average earnings or 2.5% – whichever is the highest.
One way the Government could help keep down the bill for the taxpayer is to increase the state pension age, which is already going up from the current 66 to 67 and then to 68 over the coming years.
Simon Heath, partner at investment firm Heligan Group, said raising the state pension age is a “highly emotive topic” but future increases cannot be avoided.
He warned: “A retirement age of 70+ is inevitable but unlikely to be until the end of this century and, therefore, has little short-term impact on government expenditure.”
Looking at the demographics issue, he said: “The average life expectancy in the UK is 82, but is it right or fair for people to have to work into their 70s when motivation, energy and enthusiasm for work will undoubtedly have dropped.”
The state pension age will go up from next year, increasing in stages to 67 between 2026 and 2028. It’s also timetabled to increase from 67 to 68 between 2044 and 2046.
Other experts warn the rise to 70 could come sooner than Mr Heath is predicting. Aaron Peak, personal finance expert with credit score platform CredAbility, stated: “If pension costs keep rising, we could see talk of pushing the age to 70 by the 2050s or 2060s. However, this will be a tough sell politically, especially for those in physically demanding jobs.”
Another way to curb the rising costs of the state pension would be to change the triple lock metric, switching to a model where the yearly increase to payments is less generous.
Mr Peak said: “The triple lock has been a lifeline for retirees, but it’s becoming harder to sustain. If wages and inflation keep rising sharply, the Government may need to rethink the policy within the next decade, either by tweaking the formula or setting a cap on annual increases.”
Other experts in the pensions field have suggested alternative models for the triple lock. Steven Cameron, pensions director at pensions firm Aegon, suggested a three-year average model to provide smoother increases.
He explained: “Pensioners would receive an inflation increase as a minimum, and if over the previous three years wage growth has on average been higher than inflation, they’d get an extra uplift.
“This avoids widely fluctuating outcomes at times when both inflation and earnings growth are unpredictable, smoothing things out but ensuring pensioners still share in sustained increases in the nation’s wealth.”
Last April, payments increased 8.5% in line with earnings while the year before, pensioners enjoyed a record 10.1% boost to payments in line with inflation.
With the 4.1% boost from April, the full new state pension will go up from the current £221.20 a week to £230.25 a week. The full basic state pension will increase from £169.50 a week to £176.45 a week.
