Business leaders have reacted to the government’s announcement that the pension age will rise from 67 to 68 by 2039.
It follows the recommendations of the second Independent Review of the State Pension Age report by former CBI director general John Cridland, proposing that those under the age of 45 may have to work a year longer.
The rise in the pension age to 68 will happen between 2037 and 2039 rather than by 2044 as originally proposed, and will affect those born between 6 April 1970 and 5 April 1978. The government said the new rules would save the taxpayer £74 billion in NI contributions by 2045/46.
Secretary of state for work and pensions David Gauke, who made the announcement, told the Commons: “As life expectancy continues to rise and the number of people in receipt of state pension increases, we need to ensure that we have a fair and sustainable system that is reflective of modern life and protected for future generations.”
However, shadow work and pensions secretary Debbie Abrahams said Labour would leave the state pension age at 66, adding that the pension hike was “astonishing” given life expectancy was beginning to stall, with long-standing health inequalities between different income groups and regions in retirement.
“We will look again at the emerging evidence with a view to guaranteeing a secure and healthy retirement for the many, not just the few,” she added.
Head of retirement policy at Hargreaves Lansdown Tom McPhail said the move was bold given the controversies the government faced in the general election over its manifesto pension policies such as the triple lock.
“They’re asking around six million people to wait longer for their state pension,” he said. “It’s a necessary measure but they are not making popular political choices and are not going to get credit for pushing ahead with making people work longer.
“However, the implementation of this is being passed to the next government as they won’t need to begin legislating on this until 2023, so there’s an element of kicking the can down the road,” he added.
Former pensions minister and director of policy at Royal London Steve Webb said that given the more aggressive options on the table Cridland's decision was a compromise.
“It’s a case of us paying for living longer and the government has a choice on which generation has to pay for it,” he added.
However, chief executive of the Centre for Ageing Better Anna Dixon said urgent action was needed from government and employers to make the labour market fit for purpose. She cited flexible arrangements at work.
“Inequalities in life expectancy and healthy life expectancy mean that many people will find it impossible to work until state pension age,” she said. “Without additional support or mitigating policies from government, pensioners will face financial difficulties and hardship in later years. More radical benefit reform should be considered for those with long-term health issues and disabilities.”
Former pensions minister Ros Altmann rejected Labour’s proposal to keep the state pension age at 66 because it would put a heavy tax burden on the younger generations.
She proposed the government move away from a magic age at which people should aim to stop working and live on a state pension. Instead she proposed a flexibility in state pension age, reflecting their health and length of working life.
“At the moment the state pension is only flexible for those who are healthy and wealthy enough not to need it at state pension age,” she said. “The central issue is whether the state pension should run on a one-size-fits-all approach, based purely on estimates of the average, or should have some flexibility to account for people's increasingly flexible lives.”
Director of WEALTH at work Jonathan Watts-Lay said: “It’s vital that those approaching retirement review how much retirement income they will need, or would like, as early as possible, to get a better understanding of what they need to be doing now.
“If there is a shortfall up until the point of receiving the state pension saving more now or working longer than planned could make a real difference, if either option is possible for them,” he added.