Changes to the State Pension Age

However, these plans may not be set in stone. The decision to accelerate the increase in the State Pension age was postponed before the election but will need to be addressed soon. Any changes could have a substantial impact on financial planning, influencing not only the State Pension age but also the age at which private pension funds can be accessed. Your Financial Planning by TaxAssist Adviser is here to help you navigate these changes as they unfold and to ensure your financial plan is robust enough to handle whatever comes.

 

What Decisions Have Been Made About UK State Pension Ages?

It’s important to understand the background. Previous governments have already legislated for an increase in the State Pension age from 66 to 67 during 2026-28, and from 67 to 68 during 2044-46. However, the timing of the rise to 68 is uncertain and will be reviewed independently within the next two years.

 

Could the State Pension Age Rise Even Faster?

There are concerns about the sustainability of the State Pension. Several think tanks, including the International Longevity Centre (ILC), have warned about its affordability. Earlier this year, the ILC suggested that to keep the State Pension affordable, the age might need to rise to 70 or even 71 by 2050.

The ILC highlighted the growing demographic imbalance that could place significant pressure on government finances. It also noted that younger generations tend to lack the savings and assets their parents and grandparents had, which could exacerbate the issue.

 

Is the State Pension Affordable?

When the State Pension was first introduced in 1909, it was available to people from age 70, but the average life expectancy at birth was only 52. Since then, life expectancy has significantly increased—by 10 years between 1951 and 2020, with a further four-year rise projected by 2070.

While increased longevity is something to celebrate, it also brings higher state costs. The ‘triple lock’ policy, which guarantees an annual rise in the State Pension of at least 2.5%, or the higher of inflation or wage growth, has led to State Pension payments growing rapidly over the past decade. Additionally, the large number of Baby Boomers now reaching retirement age further intensifies cost pressures.

The Office for Budget Responsibility (OBR) projects that the cost of the State Pension as a percentage of GDP will rise from 4.8% to 8.1% by 2071. The government’s goal has been to keep this cost below 6%, a threshold that could be exceeded as early as the late 2040s.

 

How to Prepare for Rising Pension Ages

If retirement is still some time away, there’s an opportunity to take control of your own pension planning. Time is a critical factor in growing your investments—the longer your money has to grow, the better the potential returns, although, of course, there are no guarantees.

For example, if David starts investing £100 per month at age 25 and Mike invests £200 per month starting at age 45, both will have saved £48,000 by age 65. Assuming a 5% annual return, David’s investments will have nearly double the value of Mike’s due to the power of growth, reinvestment, and compounding over a longer period.

 

Where Should You Save?

Starting with a company pension is often a wise move. Many employers match or partially match contributions, and pensions are one of the most tax-efficient ways to save. Contributions made from your salary typically escape income tax, and private pensions, including SIPPs (self-invested personal pensions), offer similar tax advantages. The annual contribution limit for most people is £60,000.

It’s also important to be aware of the ‘private pension age’—the age at which you can access money in a company pension or SIPP. This age is generally set at 10 years below the State Pension age, a rule established by changes in 2007. The previous government announced that this private pension age would increase from 55 to 57 on 6 April 2028, affecting those born on or after 6 April 1973. They also promised to provide at least 10 years’ notice of any further changes.

Taking control of your pension planning is crucial. Gaining a comprehensive view of your pensions and creating a solid plan is essential. Financial Planning by TaxAssist can work with you to develop a strategy that aligns with your financial goals and prepares you for any future changes. Contact our team of experienced Financial Planners on 0330 441 2244 or email [email protected]