Accelerating the age at which people are eligible for the state pension risks forcing people to rethink retirement plans and find thousands of pounds to bridge an unexpected year without state support
Millions of people approaching retirement could face a significant and unexpected hole in their financial plans if the Government accelerates the increase in the State Pension age, The Estate Registry (TER) has warned.
Bringing forward an increase could leave people having to fund an additional year of retirement themselves or remain in work for longer than they had planned.
The Estate Registry, a leading UK provider of end-of-life and later-life administration services, says the implications go far beyond simply waiting another 12 months for the State Pension, potentially affecting savings, private pension decisions, mortgage and housing plans, and the ability of people to remain in physically demanding jobs.
Under legislation currently in place, the State Pension age is due to rise to 68 between April 2044 and 2046, affecting people born after 5 April 1977. However, documents published by the Office for Budget Responsibility (OBR) indicate that the Treasury has previously identified a timetable of 2037 to 2039 as its current policy position for reaching the higher pension age.
If implemented, the earlier timetable could affect approximately five million people currently aged between 49 and 55, potentially requiring them to remain in employment for an additional year before they can begin receiving their State Pension.
Howard Enders, Chief Operating Officer at The Estate Registry, providers of bereavement services NotifyNOW, Settld and InheritNOW, says: “The financial consequences could be significant. By the time such a change takes effect, a year without State Pension income could represent more than £16,000 in lost annual retirement income.”
The full new State Pension is currently worth £12,548 a year, while the State Pension age is already gradually increasing from 66 to 67.
The issue has emerged as the Government undertakes its latest statutory review of the State Pension age. Under the Pensions Act 2014, the Government is required to review the pension age at least every six years, with the aim of ensuring the system remains fair, affordable and financially sustainable.
The OBR has indicated that it has been told the Government’s current policy position assumes the State Pension age will reach 68 between 2037 and 2039. The watchdog has also estimated that delaying the increase beyond that period could cost the Government approximately £6 billion for every additional year.
Enders continues: “The issue needs clarity, particularly because retirement and pension planning decisions are often made many years in advance.
“Changes should be announced well ahead to give people enough time to adapt their savings and retirement plans. Previous reviews have also highlighted the importance of providing individuals with sufficient notice of significant changes to the State Pension age.”
The uncertainty comes against the backdrop of previous debates over the economic and social consequences of requiring people to remain in employment for longer.
Campaigners and financial experts have raised concerns that some older workers may struggle to continue working, particularly those in physically demanding occupations, while others could face a significant gap between their planned retirement date and their State Pension entitlement.
The Treasury has said that the prospect of a 2037-39 timetable is not new and reflects a commitment made publicly by the previous government. It has also emphasised that the current State Pension age review remains underway and that its final outcome cannot be anticipated.
For millions approaching retirement, however, the distinction between an existing policy position and a formally announced change could have major practical implications. Those expecting to receive their State Pension at 67 may need to reassess their savings, employment plans and intended retirement date if the timetable is ultimately accelerated.