Your Thoughts: Pension Age Increase
Last week we heard news that the government is increasing the UK state pension age from 67 to 68 seven years ahead of the original schedule, to now be implemented in 2037.
This means that six million more men and women currently between the ages of 39 and 47 will have to wait a year longer than they expected to get their state pensions.
After the Secretary of State for Work, David Gauke’s announcement in the Commons last week, Lawyer Monthly heard from various legal, employment and pension experts on the matter.
David Assor, Head of Pensions, hbfs:
As a stand-alone change, accelerating the increase in the SPA looks like a sensible move in the context of a population that is living longer. It gives those affected plenty of time to do something about it (assuming it is eventually enshrined in law which we won’t know until after the next election at the earliest).
It also reinforces the principle when planning for retirement: we must not assume that current pensions legislation will remain unchanged. We must be mindful that tax-advantageous retirement savings opportunities will likely only be limited further. We have seen this in the recent past, with the Lifetime Allowance reduced from £1.8m to £1m, and the Annual Allowance reduced from £250,000 per annum to £40,000 per annum (and even lower for higher earners).
Pension freedom will help but only if we take full advantage of the tax efficiencies it offers us before we retire, at retirement and, just as importantly, in terms of any legacy we leave to our children.
So, what should we be doing? In the short-to-medium term it has to be the case of “buy now while stocks last” – no point in waiting until you can better afford to put aside money for retirement (as the 2006 tax changes suggested you could) because the option may not be available when you get there. In the longer term, it will be all about looking to provide for ourselves and our dependants from the point at which we stop working full-time in the job which provides our main source of income which could be well before we reach state pension age.
We shouldn’t rule out further tax restrictions from the government on all sorts of pensions, whether they be paid by the state, public or private sectors and therefore people need to be both prudent and savvy when preparing for life after retirement.
Andrew Campbell, Partner, Doyle Clayton:
Millions of people will now have to work an extra year before retiring at age 68, after an increase in the state pension age was brought forward from 2044 to 2037. This follows on from existing proposals to equalise the state pension age between men and women to 65 by the end of 2018 before increasing it to age 66 in 2020 and age 67 in 2028.
The primary driver and justification for this latest change, is, unsurprisingly, cost, with the DWP estimating that the 12 month increase will save around £74 billion over the next 30 years as well as promoting intergenerational fairness, in view of increased life expectancy amongst the population.
Whilst on the face of it, a costs argument does not appear completely irrational, increasing state pension age on its own does feel redolent of taking a blunt instrument to the wider problem of an aging population. For example, it is all very well expecting people to work for a further 12 months, but this is predicated on the assumption that the job market will be there to absorb an ever-aging population. In my view, it seems most unfair for the private sector employer to bear the cost of providing an additional 12 months’ work simply because a state benefit has been unilaterally deferred by a government some 20 years previously. Also, although this is something of a generalisation, those who are in better paid jobs will often be in a position to retire earlier and not be reliant on the state pension, which is a markedly different position to those in lower income brackets who do rely on the state pension but who may find themselves physically incapable of continuing their current role until age 68. If increasing state pension age is just about cost saving, then the government should acknowledge this – as things stand, this ignores the wider conversation that needs to be had around different ways to manage the implications of people living longer, and guaranteeing that the jobs market and social infrastructure is in place to ensure that people in old age get adequate support.
Ben Simpson, Head of Wealth Management, Menzies LLP:
As with all areas of financial planning, the impact of this decision will depend very much on individual circumstances. While increasing the state pension age by one year will be understandably painful for those who are ‘just about managing,’ it is likely to be viewed as more of an annoyance for wealthier people, rather than a catastrophe. Of course, any delay in receiving a state pension will also be felt most keenly by those with a reasonable expectation of reduced life expectancy.
Another measure certain to impact retirees is the recommendation to remove the ‘triple lock’ in the next parliament, the justification being that it has led to disproportionate increases in pensioners’ incomes relative to the working population since it was introduced in 2010.
Given the UK’s ageing population, the decision to bring forward the increase in state pension age should come as little surprise to many, indeed earlier this year the WEF (World Economic Forum) recommended a retirement age of 70 by 2050. It is also fair to note that whilst future generations will have to work longer than their parents, increasing life expectancy makes it likely that they will ultimately be in receipt of a state pension for longer than previous generations.
In many ways, it could be argued that the Government’s plans shouldn’t affect retirement planning at all. Rather than having their retirement age defined by the state, effective retirement planning should afford people control, allowing them to manoeuvre themselves into a better position to choose when to stop working.
We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!
