Currently, the age at which you are entitled to claim the State Pension is 66. This is expected to rise to age 67 in 2036, and then to 68 in 2046. A think-tank has recently floated the idea that, in order to make the State Pension sustainable, pensionable age needs to be increased to 71 by 2050. A falling birth rate, combined with an increase in life expectancy means that in the not-too-distant future there will be a greater number of elderly people claiming the benefit, with less people paying National Insurance Contributions into it. Les Mayhew, the author of the report, believes the state pension age may need to change to 71 in order to “maintain the status quo of the number of workers per state pensioner”.
If we generalise and say that most people live for 25 years in retirement, it means that, on average, each person is receiving over a quarter of million pounds from the government when they retire (25 years x £11,500 = £287,500). This does seem an extremely generous top-up to our income, especially as people should have their own private pensions to utilise. If life expectancy increases, meaning people have 30 years of retirement, then this figure increases further.
Bear in mind that the State Pension continues to increase with the triple lock, which means that every year it increases; so every year the working populous have to pay more in for it to be sustainable.
The options the government have are:
- Remove the Triple Lock – reducing how much the State Pension increases each year will mean that the payments in would not need to jump as much. In the last two years, the full state pension has increased by 10.1% (2023) and 8.5% (2024). These massive increases are difficult to provide for without similar massive increases in tax.
- Increase pensionable age – if people were to receive their state pension later, the over all number of years they would receive it for would diminish, making the payments smaller in total. Retirees would use their personal pension if they wanted to retire early, and the government’s spending could still pay for an increased State Pension of 20-25 years.
- Increase National Insurance contributions – workers paying more tax will mean there is a larger pool from which to take, so the aging population can be paid.
- Do away with the State Pension altogether – it has become a behemoth of a problem and is not sustainable without big changes, which members of the public won’t be happy with.
The future of the State Pension is looking increasingly uncertain, which is why it is imperative that you have a plan in place for your retirement. Shockingly, 28% of over-55s have no retirement savings in place and will be relying entirely on the State Pension. It is never too late to start saving into a Pension, and will only help you improve your future situation.
