State pension age hike to 68 in 2035 would condemn many to ‘impoverished’ retirement, says Age UK

Rumors that the government plans to raise the state pension age to 68 by 2035 have led to warnings that sick and poor people and carers will bear the brunt of the decision.

Younger generations are also likely to struggle, as industry analysis shows that the state pension plus minimum auto-enrollment savings means they will barely be able to scrape together a decent income in old age.

The state pension age for men and women is now 66 and will be raised to 67 between 2026 and 2028.

But the government will reportedly announce an earlier-than-expected increase in the state pension to age 68, possibly in the Budget on March 15.

Officially, the increase to 68 is scheduled between 2044 and 2046, but a previous government review recommended bringing the change forward to 2037-2039, and it is currently being reviewed.

“News reports that the government may already have decided on a further increase in the state pension age are extremely worrying,” said Caroline Abrahams, charity director at Age UK, adding that there is “no justification” for this.

Her organization has just published a new report on people over 50 and 60 who will be dependent on state pensions, claiming the move could have devastating consequences for them.

The people who will lose the most are those who are unable to work due to poor health and caring responsibilities, as well as anyone who becomes unemployed in middle age and then becomes unable to find another job, partly due to a lack of educational opportunities and rampant age discrimination on the labor market,’ says Abrahams.

“As things stand, any decision by the government to make today’s over-50s wait longer for their state pension will leave hundreds of thousands of people with a difficult and poorer life later on.”

Apart from the increase in the state pension age, another challenge for savers is that the minimum age for private pensions will be raised from 55 to 57 in 2028.

Six out of ten run the risk of missing out on an ‘adequate’ pension

The state pension is not enough to live comfortably and the current direct debit is too low, savers have been warned.

The state pension age controversy follows an influential industry report that exposed what annual income people need for a minimal, moderate or comfortable retirement.

Those on full state pensions will still struggle financially and will need to save significant private pension pots to secure a decent income in retirement – see box below.

Meanwhile, MPs are also sounding the alarm that the minimum savings levels for automatic enrollment are too low. As a result, more than 60 percent of people are at risk of missing out on an adequate standard of living when they retire, they say.

The minimum is currently 8 per cent of a person’s salary in a range between £6,240 and £50,270, with contributions split between employees, employers and government tax relief.

The government was accused earlier this week of ‘tinkering at the edges’ with ‘nudging’ initiatives rather than tackling the problem of undersaving head-on, by Work and Pensions Committee chair Stephen Timms MP.

He denounced the government’s rejection of his call to raise the minimum for automatic enrollment. That was despite the government’s acknowledgment to its committee that: ‘The current statutory contributions of 8 per cent on an income bracket are It is unlikely that all people will get the pension they aspire to.’

There are concerns that raising the minimum for automatic enrollment could lead more employees to stop saving for retirement savings, especially at a time of skyrocketing household bills. However, the opt-out rate remained low even during the pandemic.

Meanwhile, walking minimums would also increase the government’s tax credit for pensions at a time of tight public finances.

Pension experts have been warning for years that the government could at some point choose to cut generous tax cuts into pensions to raise billions of extra money for other spending priorities.

The phasing out of salary-related pensions – which provide guaranteed benefits until you die – in the private sector has made people more dependent on state pensions and automatic enrollment schemes where savings are invested to provide a pot of money in retirement.

>>>When will you reach state pension age: Read our manual here

What are the consequences of an early state pension age of up to 68 for the elderly?

Millions will be condemned to a ‘miserable and impoverished’ run into retirement and often beyond if the rise in the state pension age is accelerated, Age UK claims.

It says people should be notified individually of any changes to their state pension age at least 10 years in advance, and there should be at least 10 years between each change.

‘If people reach state pension age within 10 years, they should be given a clear commitment that it will not rise again,’ adds Age UK.

About 3.5 million people between the ages of 50 and 64 are currently considered ‘economically inactive’ according to official statistics, but of these, 1.3 million are sick and 0.5 million take care of the family and home.

Many of them also have limited savings, with an estimated 1.5 million having less than £5,000 set aside and 120,000 having no savings at all, it says.

“This really matters because we know that people who are unable to work in the run-up to state pension age often need to save for retirement to make ends meet,” says the charity.

“With little or no savings to use, their prospects for modest but dignified lifestyles during their pre-retirement years are bleak.

“They will also likely be sentenced to penny-pink pennies, as the money they had saved to bolster their income will have been spent.”

Age UK notes that many people are in poor health by the time they reach the current state pension age of 66, as the average healthy life expectancy in the UK is 62.8 for men and 63.6 for women.

It cites research from the Institute for Fiscal Studies that found that raising the state pension age from 65 to 66 more than doubled the poverty rate among 65-year-olds, from 10 percent to 24 percent.

And it adds: ‘It is worrying that improvements in life expectancy are stalling while inequality appears to be widening.

‘Life is very hard for many people in the 50-64 age group who have little or no work. Some older carers try to balance work and care, while others have had to stop working altogether to become full-time carers and have suffered financially as a result.

“Other people are unable to work due to poor health or disability, are currently working but find it difficult to continue because their health is deteriorating or find it difficult to find a job again after a period of absence from the labor market.”

Age UK interviewed people leading up to retirement who knew the state pension age was around 66 or 67, but it turned out few had looked at the exact timing or what they would get.

The reasons they gave included that they were focused on simply getting by day-to-day on a low income, sometimes with added pressure from ill health or caring responsibilities.

Age UK says they also expressed ‘fatalism that there was little they could do to change their current or future financial position’ and that they were not thinking about retirement ‘because of fear and other negative connotations’.

They expected that ‘if things change, they will change for the worse’ and lacked knowledge of where to get reliable information, the charity added.

Age UK called on the government to improve employment support and opportunities for those who can stay in work until they reach state pension age, and better support for those who cannot.

“There is a strong case for early access to full state pensions for carers and sick or disabled people in a number of limited, well-defined circumstances,” it says.

“Means-tested benefits also need to change to support a wider group of low-income people approaching state pension age, to ease the transition to retirement if they can’t work or find work.”