Concerns grow over potential backlash to state pension age review

Concerns around a potential state pension controversy in the UK have grown, with industry experts suggesting that there is a "strong likelihood" that the state pension age will be increased beyond age 67, earlier than currently planned.

The state pension age review is expected to conclude in "early 2023" with the state pension age review reports from both the Government Actuary and Baroness Neville-Rolfe to be published in “due course".

However, speculation has persisted in the meantime, as industry experts look to the latest government figures for suggestion as to what the outcome of the review may be.

The latest report from the Government Actuary, for instance, revealed that recent changes to National Insurance Contributions and to the state pension mean outgoings will exceed receipts in each year from 2024/25 till 2027/28.

This is expected to add fuel to the debate around whether the state pension in its current form is sustainable, with Aegon pensions director, Steven Cameron, warning that the figures have made changes to state pensions "even more likely".

He stated: "While these latest figures don’t look beyond 2028, unless changes are made, the state pension looks increasingly unaffordable.

"While there is a very small fund to cover the shortfalls till 2028, it is declining rapidly and could run out entirely unless the Treasury steps in and pays special grants.

“The government did honour the state pension triple lock this year, but there is growing concern that granting such generous uprating’s in future years will simply be unaffordable, without putting growing pressures on today’s already stretched workers.

"The government will shortly publish findings of its review into state pension age, and there’s a strong likelihood that on affordability grounds, this will have to increase beyond age 67, earlier than currently planned."

In addition to this, Hargreaves Lansdown highlighted the UK’s lower birth rate as a further consideration, noting that while the number of live births in the UK increased in 2021 compared, the latest figures remain among the lowest since the early 2000s.

Combined with increasing longevity, the firm warned that this trend could have “huge consequences for state pension policy”, agreeing that there also growing intergenerational concerns around the state pension triple lock.

Hargreaves Lansdown senior pensions and retirement analyst, Helen Morrissey, stated: “Today’s birth rate data shows little evidence of the much talked about pandemic baby boom and alongside increasing longevity shows the fine line that needs to be tread on state pension policy.

“With the number of older people continuing to rise there is a real imbalance when it comes to younger people in the workforce supporting a burgeoning ageing population and the sums don’t add up.

"The debate continues to rage around the triple lock and whether it’s the fairest way to uprate state pension here in the UK and we await the findings of a government review into whether state pension age will be hiked further and faster."

Concerns around the UK’s state pension age review have also been heightened by the recent experience in France, as plans to increase the state pension age by two years to 64 by 2030 have been met with protests across the country.

Yet changes may be needed to ensure sustainability in the system, as Morrissey notes that "we’ve seen retirement ages increased throughout Europe".

Indeed, AJ Bell head of retirement policy, Tom Selby, warned that “all countries will eventually have to face up to the demographic time bomb, with a growing older population and a shrinking younger population to support them”.

He continued: “State pension age controversy is on the horizon in the UK too, with a review into the state pension age set to be published in the coming months.

“Recent data suggests life expectancy improvements have stalled, which some will argue means state pension age increases should be scaled back – or even cancelled altogether.

“But those downward shifts in life expectancy projections, in part a result of the pandemic, come after decades of rapidly rising longevity. During that period, the state pension age of women has risen by six years – mostly to make it equal with the men’s state pension age – while for men it has risen by just one year.

“In reality, younger savers need to prepare for a world where the state provides less of their retirement income than it has done historically. Indeed, it would not be surprising if those in their 20s and 30s today have to wait until their 70th birthday or even beyond to receive the state pension.

“Prime Minister Rishi Sunak and his Chancellor Jeremy Hunt risk being caught between the Devil and the deep blue sea when it comes to state pension age increases.

"A dramatic acceleration of existing plans would risk electoral oblivion, while pushing back planned rises could cost the Exchequer tens of billions of pounds.

“Given these challenges, the easiest move both politically and fiscally may be to stick to the existing timetable. The decline in life expectancy projections means this could boost the Treasury’s coffers while potentially avoiding a fatal electoral fallout.”

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