People currently aged in their 50s are set to lose at least £16,464 by the time they reach state pension age, experts have warned.
Middle aged workers face losing serious amounts of money. (Image: Getty)
People aged over 49 today could be in line to lose at least £16,464 if the state pension rises seven years earlier than previously planned.
A report from the Office for Budget Responsibility (OBR) has set out that the state pension age will need to rise to 68 in 2037, not 2044, seven years earlier than previously indicated in Government planning.
It means that millions of people will face an extra year in work under the plans. In its report, the OBR says the ‘current policy’ is to move the rise forward by seven years, and that the Treasury has confirmed the decision, despite the fact that the Chancellor at the time the report was issued, Rachel Reeves, did not announce it, and nor did her successor, John Healey.
Experts at the finance firm Fidelity told the Express that the change, should it be put in place, could mean that someone aged in their 50s today would lose upwards of £16,464, and likely more.
That’s because triple lock increases will push the value of the state pension higher between now and 2038, but those affected by the earlier state pension age rise will miss out on a year’s worth of payments.
According to the Pension Act 2007, the current policy is that the pension age will rise to 68 from 2044 to 2046, in a similar transitional period to the current state pension age rise from 66 to 67, which is now underway and due to complete by April 2028. If the planned increase to 68 is brought forward, it will mean roughly five million people aged 49 to 55 will have to work for an extra year before being eligible for their state pension.
Jemma Slingo, a pensions and investment specialist at Fidelity International, said the change has ‘big implications’ for those currently aged in their 50s, with ‘significant financial consequences’.
She told the Express: “The state pension age is rising – and it could rise faster than people expected.
“Currently, the state pension age will begin to rise from 67 to 68 in 2044. However, a report from the Office for Budget Responsibility suggests the change could take place sooner: between 2037 and 2039.
“This has big implications for a cohort of people currently in their early to mid-fifties, who may have to wait longer to receive government support. Imagine you recently turned 53, for example. Under the current timetable, you would receive your state pension at age 67, in 2040. If the rules change, however, you could be waiting until you’re 68.
“This could have significant financial consequences. The full new state pension currently pays £12,548 a year. However, it is triple lock protected, meaning it increases every year by the highest of either inflation, wages or 2.5%. In 2037, therefore, it will be worth significantly more: at least £16,464, if the triple lock stays in place. By 2040, it could be worth £17,730.”
Dr Carole Easton OBE, Chief Executive at the Centre for Ageing Better, said: “It is extremely worrying if the Treasury is thinking of making the next rise in state pension age in just over a decade’s time.
“The Government needs to be very careful about making this change.
“During the rise to 66, it doubled the poverty rates for 64-year-olds.
“A recent parliamentary committee report warned the impact is likely to be even bigger now for the current rise to 67.
“Other than the substantial savings the Treasury will make from making people wait longer for their State Pension, it is hard to see what evidence could be used to justify introducing the next rise sooner. ”
Catherine Foot, Director of the Standard Life Centre for the Future of Retirement, warned that many, especially those on lower incomes, are not prepared for the change.
She said: “The state pension remains a critical element of retirement incomes in the UK for millions of people, and the reports that state pension age increases could be accelerated are a reflection of the difficult balancing act Government faces in keeping the system affordable while people live longer, and ensuring it remains fair and adequate for those who rely on it.
“The challenging reality is that our research shows the pressures are already being felt most acutely by those least able to adapt to the current increase. Over a quarter of those directly affected by rises in state pension age say they are struggling to make ends meet day-to-day – compared to just one in seven of those above state pension age – and more than a third of people in their early 60s say they expect they will need to work for longer as a result.
“However, our modelling shows that 44% of defined contribution pension savers who could be affected by a rise in the State Pension Age to 68 are already not on track to achieve the retirement they expect. What’s more, around one in seven (14%) are not confident they can work until their planned retirement age and lack significant private wealth to fall back on.
“The impact is also uneven across income groups, with twice as many lower earners expecting a significant impact on their household finances compared with higher earners. An additional consideration if these changes come to pass is the impact it will have on Gen X who would be the first affected. This generation haven’t received the full benefit of either Defined Benefit or Defined Contribution pension systems and as result, many are currently tracking towards a significant drop in living standard in retirement.
“An official review of the state pension age is underway so we should not take these reports as the outcome but the discussion about how we balance fairness and affordability of the state pension is one we can expect to hear much more on in the coming months.”