The government has recently launched a new review of the State Pension age. The review will consider whether the current rules around pensionable age are appropriate based on the latest life expectancy data and other evidence.
The State Pension age for both men and women is currently 66, but it’s set to rise in the future. However, following the launch of the new State Pension age review, one think tank is calling on the government to address one particular issue before legislating to raise the State Pension age. So, what is this issue exactly?
[top_pitch]
What’s happening with the State Pension age?
The current plan is for the State Pension age to rise to 67 in 2028 and then to 68 before 2048.
But a lot has happened in the recent past. Life expectancy growth has slowed with the Covid-19 pandemic thought to have played a significant role. Regional as well individual differences in life expectancy and healthy life expectancy have also become rife.
This has prompted calls for a comprehensive review of State Pension age changes.
What needs to be addressed before increasing the State Pension age?
According to David Sinclair, Director of the International Longevity Centre-UK (ILC), Covid-19 has had an impact on life expectancy and on the employment rates of older workers.
The virus has also exposed the enormous disparities in how long people live and how healthy they are. According to Sinclair, “Too many people are being forced out of work before the State Pension kicks in.”
For these reasons, Sinclair and the ILC are calling on the government to first level-up healthy life expectancy before enacting legislation to raise the State Pension age to 68.
“Considering how effectively we support people to work longer must play a part in the decision about whether to increase the State Pension age,” says Sinclair.
In 2017, the first review of the State Pension concluded that the next review should consider whether the increase to 68 should be brought forward to 2037-2039. At the moment, it’s unclear whether the second review will recommend hastening the increase in the State Pension age. Some believe that the review could actually put a stop to such plans.
Regardless, Sinclair believes that inequalities in healthy life expectancy must be addressed first. Speaking about the government’s plans, he says, “If they want to follow their plans to increase the age we receive our pensions further, they must be clear about how they will mitigate the impact on those of us who aren’t living longer and healthier lives.”
[middle_pitch]
How can you protect your retirement?
Previous changes to the State Pension age have proven to be quite contentious. Women born in the 1950s, for example, claimed that they were discriminated against when the government decided to equalise State Pension ages for men and women between 2010 and 2020.
They say that they were not given enough time to make adjustments to cope with the extra number of years that they would be forced to live without State Pension.
If the government implements the proposal to bring forward the State Pension age increase to 68, the same fate awaits those currently in their early fifties. They could see their State Pension payments delayed by up to two years.
If you are in this group, it means that you could find yourself in a big financial hole. This hole could become bigger if you are forced to leave work earlier for any reason.
So, how can you protect yourself from such an outcome? One option is to increase your contributions to your workplace or personal pension. This can help fill any financial shortfall in your overall pension pot. If you can withstand a little risk, a second option is to consider investing some of your savings in assets that have the potential for faster growth, such as stocks and shares.
