State pension age increases will be "reviewed automatically", Chancellor says

In a speech accompanying the 2012 Budget, George Osborne said that details of how the scheme will operate will be published in the summer.

Under current plans the retirement age for women in the UK will rise to match that of men from 2018 before it increases to 66 for both sexes in October 2020 and 67 by 2028.

The Government also plans to reform the existing means-tested state pension into a single tier pension, at a level above the current means-tested standard guarantee credit. Age-related allowances (ARAs) for existing pensioners will be frozen at their 2012-13 levels from next April until they align with the tax-free personal allowance for those of working age, while no new allowances will be available to those reaching retirement age after this date.

Osborne said that the new system would simplify a "particularly complicated feature of the tax system". He added that it would protect allowances for existing pensioners, while introducing a single personal allowance for pensioners and workers.

Pensions law expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, said that providing that the new system was "fair and affordable" a single-tier state pension would simplify the current "very complex" system. However, he described the Government's commitment to an automatic mechanism as "bad news for the young".

"Increases in longevity have always exceeded expectations," he said. "This would mean that the state pension age would increase at a quicker rate than most would expect. When, then, will our younger generation be able to retire? They will only be able to dream of the extended retirement in good health that many current pensioners have been enjoying."

Overall, however, he said that many commentators' fears surrounding pensions allowance in the lead up to the Budget had not been realised.

"Every time we have a Budget, commentators fear in advance that large incursions will be made into the generous tax regime for pensions," he said. "However, no new changes have been introduced to the annual allowance or the lifetime allowance in addition to the reductions we already knew about. High earners can still claim full tax relief on their pension contributions up to the level of the annual allowance and the tax-free lump sum payable on retirement has been kept for now."

The age at which men could receive the state pension was set at 65 in 1926 when there were nine people of working age for every pensioner, according to Government figures. There are now only three people of working age for every pensioner and it is estimated that this will fall to nearer two by the end of this century.

The Prime Minister indicated his support automatic increases to the state pension age at a conference earlier this year.