The state pension age should be raised to 71, otherwise too few employees would remain

The state pension age would have to rise radically from 66 to 71 to maintain the status quo in the number of workers financially supporting retirees, an influential think tank has warned.

Unless other measures are taken, this could happen as early as 2040, the report suggests.

For many countries with well-developed economies, including Britain, a ‘dependency ratio’ of just over 50 percent – ​​just one worker per retiree – is forecast by 2050.

In 2000, this rate was about 20 percent, or five workers per retiree, but the population is aging rapidly, according to the International Longevity Center.

Today, the report estimates that for every person over 65, there are roughly three working-age adults.

The think tank warns that the state pension age may have to reach 70 years and older by 2040 to keep the dependency ratio sustainable, if you take into account the time that 15 to 20 year olds spend on full-time education and therefore not on the time that 15 to 20 year olds spend on full-time education. the workforce.

The state pension age for men and women is now 66 and will rise to 67 between 2026 and 2028. In 2028, the minimum retirement age for access to work and other private pension savings will also increase, from 55 to 57.

The government announced early last year that it would postpone a decision on the next increase in state pensions to age 68 until after the next election, citing lower average life expectancy as the main reason.

‘Given the level of uncertainty surrounding life expectancy data, the labor market and public finances, and the significance of these decisions for the lives of millions of people,

“I am aware that a different decision may be appropriate once these factors are clearer,” Work and Pensions Secretary Mel Stride said at the time.

The government’s intention is to inform people of future changes to the state pension age at least ten years in advance.

The ILC said today: ‘The recent stagnation in life expectancy during the austerity years and Covid has temporarily eased pressure to raise the state pension age above 67 after 2027, but in the longer term the pressure will be on to raise it increase to 68 or 69 years earlier. That.

‘But while we are experiencing poor health earlier in our long lives, the problem becomes even more urgent as workers leave the labor market long before they reach state pension age, as this reduces the tax base for pensions.’

The ILC says poor health is one of the main reasons for this exodus and one of the biggest obstacles to economic prosperity, because it reduces production and increases taxes.

‘Additionally. a smaller labor force and a large economically inactive population create massive labor shortages that must be filled by migrant labor, causing additional problems.”

The ILC says getting people to work longer is a challenge because by age 70 only an estimated 50 percent of adults are disabled and able to work.

It has previously published research showing that more attention is needed to prevent poor health, not just in old age, but from young age through adulthood.

“The longest health care period occurs in countries that spend the most on prevention and immunization of adults,” the report says.

And the ILC adds: ‘If the share of the economically active population were to increase from current levels of around 78 percent to 85 percent, it could be possible to keep the state pension age below 70 from 2040 – at least for a few years.’

A government spokesperson responded to the ILC by saying it will continue to ensure that the state pension remains a sustainable and fair basis for post-retirement income for future generations.

‘The over-50s are an asset to our economy and that’s why we committed £70 million in employment and skills support for them in last year’s Spring Budget. This investment is already paying off: last year, an additional 54,000 people over 50 were added to company payrolls.’

‘Our £2.5 billion Back to Work plan will support people to keep fit and find work, alongside £14.1 billion to improve healthcare so people can live longer, healthier lives.’

What do pension experts say?

“Just last year the government tried to regain public favor among its core voters by delaying the widely expected increase in the state pension age,” said Jon Greer, head of pension policy at Quilter.

‘At the time, the plan to delay was reportedly due to lower average life expectancy, but the ILC data suggests this is no longer the case as it says that while the stagnation in life expectancy has temporarily put pressure on relieved to increase after 67 years, In 2027, the pressure will increase in the longer term.’

Greer notes that Office for National Statistics figures released last week show the number of people aged 85 and over could grow from 1.6 million to 2.6 million over the next fifteen years. social care that requires more funding.

‘The Institute for Fiscal Studies previously suggested that raising the state pension age by one year in the late 2030s would likely save around £8-9 billion a year. However, delaying the planned increase in the state pension age to 68 by seven years would cost at least £50 billion.”

Greer gives the following tips for people who are concerned about the increase in the state pension age.

– The age assessment framework states that there should be a minimum 10 year notice period for individuals affected by changes.

– Increasing contributions to a company or private pension can help you bridge the gap if you have to wait longer to access your state pension.

– You may want to save in different savings forms such as Isas, so that you can benefit from them before your state pension age.

Becky O’Connor, director of public affairs at PensionBee, says the prospect of a dramatic increase in the state pension age to 71 is alarming.

‘People depend on the state pension for a significant part of their pension income. It is also crucial for confidence in people’s ability to retire in the first place.

‘Even suggesting that people won’t get this until they are in their 70s will make people feel even more distrustful than they already do of the state pension system, and cause real worry and anxiety about their future.

‘If people are in poor health or need care before the age of 71, as is likely for many, they may have to stop working before they can receive their state pension, and instead claim benefits for longer in the working age.

‘Although the sustainability of the state pension needs to be carefully examined, raising the age that people receive may not prove to be the cost saving that the government is hoping for.’

O’Connor says her company’s research has found that 48 percent of British savers believe they will not be able to retire before the state pension age if and when it is raised to 68.

Meanwhile, 60 is the ideal retirement age, but to achieve this people would have to save even more through private pensions

‘The ‘pre-state pension gap’ is the total amount of income an individual would need to meet their pre-state pension expenses from other savings, and this would widen.

‘There is also a risk that people could use up too much of their private pension savings early if they have to stop working before the state pension age, potentially leading to greater poverty later in life.’

Kate Smith, head of pensions at Aegon, said: ‘Reducing the state pension age to 71 would be a shock to many – if they expect to receive it from the age of 67 or 68. Some will only receive it for a short time. , others not at all.

Speaking about the ILC research, she said: ‘This report, published in an election year, highlights the need for political parties to detail their state pension plans ahead of the UK general election.

‘This is too important an issue to be kicked into the long grass. People need to know where they stand and what this means for their later lives, so that they have sufficient time to adjust their work and savings plans.

‘Raising the state pension age feels like a very blunt instrument – and would probably punish those most in need.’