Could the pension age rise to 70 in the future?
- Credit: PA
The state pension age should increase to 68 by 2039 and the triple lock guarantee should be scrapped during the next Parliament, an independent review recommends.
Former CBI director general John Cridland, who was appointed as the Government's independent reviewer of state pension age last year, said the state pension age should increase from 67 to 68 between 2037 and 2039.
Pension experts have said if the recommendations are taken up, people in their 40s face their state pension age being pushed back a year. They warned those in their 30s and younger may eventually face the possibility of drawing their pension at 70.
The state pension age is already due to go up in stages, with a rise to 67 by 2028. The next increase to 68 is not due to happen until between 2044 and 2046.
But the review said the rise to 68 should happen seven years earlier than planned, providing greater 'intergenerational fairness', and helping the fiscal sustainability of the state pension.
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The report, which focuses on state pension age arrangements beyond 2028, will help inform the Government's review of the state pension age, due in May.
In 2013, the coalition government said that someone should spend up to a third of their adult life above state pension age on average.
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The Government Actuary's Department has been asked to consider two alternative scenarios for the state pension age, reflecting someone spending either 32% or 33.3% of their projected adult life in retirement.
Under a 32% scenario, it found the state pension age could rise to 69 between 2040 and 2042. Under a 33.3% scenario the state pension age could rise to 69 between 2053 and 2055.
Mr Cridland's report said the state pension is a 'pay as you go' system - meaning today's workers pay for today's pensioners.
Today, there are 305 pensioners for every thousand people of working age. By the time people approach retirement nearing 2050, there will be 357 pensioners for every thousand people of working age.
Nearly £100 billion per year is currently spent by the Government on the state pension and pensioner benefits.
Projections suggest an additional 1% of GDP will need to be spent on the state pension by 2036-37. The report said if the same rise in spending was faced today, this would be equivalent to a rise in taxation of £725 per household per year.
The Government has committed to maintaining the triple lock, which ensures the state pension increases in line with the higher of inflation, earnings, or 2.5%, throughout the current Parliament.
But the report said: 'We recommend that the triple lock is withdrawn in the next Parliament.'
Tom McPhail, head of retirement policy at Hargreaves Lansdown, said: 'This report is going to be particularly unwelcome for anyone in their early 40s, as they're now likely to see their state pension age pushed back another year.
'For those in their 30s and younger, it reinforces the expectation of a state pension from age 70, which means an extra two years of work. This report also looks like the death-knell for the state pension triple lock.'
Other recommendations in the report include:
:: People over state pension age should be able to draw down part of their state pension if they want to, leaving the balance to benefit from the deferral arrangements. This could benefit people who want to carry on working part-time.
:: A 'mid-life MOT' should be introduced to encourage people to take stock, and make realistic choices about work, health and retirement.
:: There should be a drive for older workers to become apprenticeship mentors and trainers.
:: Statutory carers' leave should be introduced to help those with caring responsibilities.
:: Means-tested support should be available for pensioners should be set one year below state pension age from the point at which the increase to 68 is introduced, for people who are unable to work through ill health or because of caring responsibilities.
The possibility of varying the state pension age to reflect varying life expectancies across the country had also been raised.
But the report said having regional variations to the state pension age was not practical.
Work and Pensions Secretary Damian Green said: 'As Government goes about making its decision on the future state pension age in May of this year, these contributions and recommendations will provide important insight.'
Baroness Altmann, also a former pensions minister, said: 'I would like to see more allowance for people to get their state pension earlier if, for example, they are in poor health or started work exceptionally young, perhaps in tough industrial jobs, and genuinely cannot keep going till nearly 70.'