State pension age to rise earlier as Chancellor confirms review mechanism

Out-Law News | 06 Dec 2013 | 9:34 am | 1 min. read

Future pensioners should expect to spend one third of their adult lives in retirement, the Chancellor has announced, as he confirmed that the state pension age (SPA) was expected to rise earlier than planned.

In a speech delivered alongside the publication of this year's Autumn Statement, George Osborne said that the "latest life expectancy figures" indicated that the SPA would rise to 68 in the mid 2030s and 69 in the late 2040s. The exact dates will be set in line with the most up to date demographic data applicable during the relevant statutory review period, he said.

The SPA for women in the UK is due to rise from 60 to 65 to match that of men from 2018, before it increases to 66 for both sexes in October 2020 and to 67 by 2028. The Pensions Bill, which is currently before Parliament, contains provisions which would allow the Government to carry out a review of the SPA every five years to ensure the system is sustainable, with the first review expected to take place in the next Parliament. Today's announcement confirms the principle that will underpin these statutory reviews.

The Department for Work and Pensions (DWP) has also published a short briefing note setting out more detail about how the mechanism will work in practice.

"This is one of those difficult decisions governments have to take if they're serious about controlling the public finances," Osborne said.

"We have to guarantee that the basic state pension is affordable in the future, even as people live longer and our society grows older. The only way to do that is to ensure the pension age keeps track with life expectancy," he said.

Osborne announced that the state pension would rise by £2.95 a week from next April in line with the 'triple lock', which guarantees an annual increase of the highest of average earnings growth, inflation or 2.5%. Current pensioners, and those who reach the SPA before the new single tier state pension is introduced in 2017, are also going to be offered the opportunity to make voluntary national insurance contributions to boost their income in retirement. This scheme will run for a limited period from October 2015, according to the Autumn Statement.

Pensions expert Simon Laight of Pinsent Masons, the law firm behind, said that the Government's policy on increasing the SPA was a "sensible move for the wider good", although it would raise some issues for employers and future pensioners.

"This change further emphasises the need for individuals to provide for themselves by saving into workplace or private pension schemes," he said. "Further, employers will need to deal with additional older employees by allowing them to transition to less demanding work. Some individuals will be physically unable to work longer, so more may fall back on state benefits."