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The government has launched a review of the state pension age, starting a process that could increase the number of years people have to work before they can draw a retirement income from the state.
Liz Kendall, work and pensions secretary, said on Monday she was “formally announcing” the next government review of the state pension age, sooner than many expected, alongside a wider review into retirement outcomes.
Under the 2014 Pensions Act, the government must conduct a review into the state pension age every six years. The last review concluded in 2023.
The Department for Work and Pensions denied the state pension age review was part of an expedited process and said it could be completed “any time before the end of March 2029”.
The state pension age is 66 for both men and women at present and is scheduled to rise to 67 between 2026 and 2028 and to 68 before the middle of the century.
“We would not be surprised to see an acceleration applied to the increase of the state pension age,” said Damon Hopkins, head of defined contribution workplace savings at financial services consultancy Broadstone. “The combination of an ageing population and the huge fiscal cost of the state pension would suggest that a change is inevitable.”
The UK spends about 5 per cent of GDP on state pension benefits, up from 3.5 per cent at the turn of the century. The state pension cost £124bn in 2023/24.
Kendall has appointed Dr Suzy Morrissey, deputy director of the Pensions Policy Institute, to produce an independent report on factors the government should consider relating to the state pension age. She has also asked the government’s actuarial department to prepare a report on the proportion of adult life spent in retirement.
The government’s decision to start the state pension review comes as it relaunched a commission to examine options to boost pension savings and broaden the number of people setting money aside for retirement.
Officials think that running the two alongside each other will allow for a broad assessment of the decisions that need to be made to make the state pension sustainable.
Kendall said that despite the success of auto-enrolment and state pension reform following the previous pension commission led by Lord Adair Turner in the early 2000s, the job was “not yet done” and without action, “tomorrow’s pensioners will be poorer than today’s”.
According to the government, almost half of the working-age population — about 18mn people — are not saving anything for their retirement. Only one in five of the self-employed are saving into a pension, down from half in the late 1990s.
The new commission will be led by Baroness Jeannie Drake, who served on the Turner commission, alongside Bath university professor Nick Pearce and former Kingfisher chief executive Sir Ian Cheshire.
One of the areas the commission will look at is pension contribution rates. Under current auto-enrolment rules, staff and employers combined must pay at least 8 per cent of qualifying earnings into workplace pensions each year, with a minimum of 3 per cent coming from employers.
Kendall asked the commission “to set out a long-term road map to deliver adequate incomes in retirement for future pensioners based on the state and private pension systems working in tandem”.
She added that she was “under no illusions” about how difficult this would be, given the cost of living pressures on individuals and the challenges facing businesses. Labour has said it will not increase auto-enrolment rates in the current parliament.
The government has also vowed to protect the so-called triple lock, which was introduced by the 2010 coalition government, and ensures the state pension increases every year by consumer price rises, average earnings growth or 2.5 per cent, whichever is highest.
Kendall said the government’s commitment to the triple lock for the rest of this parliament meant that spending on the state pension was set to rise by £31bn per year.
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