The state pension age could need to rise once more, so shield your retirement: ANDREW OXLADE

Twenty years ago, the government set out a proposed timetable for increasing the state pension age to 68. As a 32-year-old, it galvanised my interest in retirement saving.

And I wasn’t alone. I remember that the website I was managing at the time saw a remarkable influx of questions from people younger than me, alarmed by the prospect of such a late retirement date.

Broadly, they wanted to know where to start in their 20s so they could retire in their 50s in the 2030s.

That website was This is Money, where I was the editor at the time, and while much has changed since, the cost of the state pension is a story that’s only become more important. And so has acting to protect your retirement.

Next month, we may learn more about whether that proposal to increase the state pension age to 68 will follow the original timetable – reaching that point by 2046 – or be brought forward. An acceleration to a date in the late 2030s has previously been mooted (see below).

A Pensions Commission was formed last year, tasked with reviewing the current timetable of age changes. An interim report is expected within the next month, with full recommendations to follow in 2027.

What is a fair state pension age?

It is not a done deal. The Commission will consider many factors. Rises in life expectancy have stalled, and the number of years we spend in good health in retirement has been shrinking. 

New analysis from the Health Foundation released at the end of April suggested that UK healthy life expectancy has fallen by more than two years over the past decade.

The Commission must also consider ‘fairness’, which raises questions about affordability.

The latest population projections from the Office for National Statistics, also published in late April, will inform its thinking. The ONS projects that the number of people of pensionable age will increase by 15 per cent, or 1.8 million, between mid-2024 and mid-2034.

And that is despite a planned increase in the state pension age to 67.

By then, roughly one in five people will be drawing a state pension. One recommendation from the Commission could be to link state pension ages with life expectancy, as happens in Denmark and the Netherlands, or maybe linked to healthy life expectancy.

What happens if state pension age plans change?

Any acceleration would have a dramatic effect on those nearing retirement, although previous commissions have suggested that at least 10 years’ notice should be given for such changes.

Bear in mind, too, that there has been an intention to peg the age at which we can access private pensions – currently 55 – at 10 years below the state pension age.

That is why it will rise to 57 in the next two years, tracking the increase to 67 for the state pension. Plans for early retirement could be scuppered.

What you need to do to protect your retirement 

On a more positive note, headlines about later state pension ages may help support the government’s admirable mission to get more people investing.

It certainly has a mountain to climb in persuading Main Street that stock market investing can fund better retirements than cash savings.

Data from the UK Economic Accounts analysed by Fidelity suggest that the collective appetite for investing cratered after the dotcom boom and bust 25 years ago and has never fully recovered. 

The rise in interest rates in recent years has prompted many to double down on the belief that cash is king.

Our report sets out the cost of that mindset. If you had invested £5,000 in global stock markets at the peak in early 2000 and added £1,000 each year, you might have accumulated £152,967 by the start of 2026. 

But if you had lost your nerve at the end of 2002, near the market nadir, and moved into cash, your pot would have grown to just £38,398.

Such scenarios are not guaranteed to be repeated, but there are many datasets across different timeframes that point to the advantages of investing over saving. The ride is often rocky, and many fall out at the wrong moments.

Those same downturns also serve as reasons not to invest – the dotcom crash of 2000, the financial crisis of 2007-08, the eurozone crisis of 2011, Brexit, Covid – the list goes on. 

There is always a reason not to invest.

I only hope that headlines about rising pension ages will spur action, as they did a generation ago. It feels as though too few people are aware of the current proposed timetable of increases.

And, as think tanks have warned, the reality could be even more stark. The International Longevity Centre, where I serve as a trustee, has suggested that a state pension age of 70 or 71 may be necessary by 2050.

Younger generations who want to retire in their early 60s, let alone their 50s, will certainly need to do more of the heavy lifting themselves. Otherwise, leaving work may not come until their eighth decade. I can’t think of a better reason to invest.

The rising UK state pension age

The Government has legislated for an increase from 66 to 67 in 2026-28 and to 68 in 2044-46. However, the timing of the rise to 68 will be looked at by the independent review.

These reviews are held each parliament and come back with recommendations which the government accepts, rejects, or comments on. There has been an orthodoxy that pensionable age should last around a third of adult life. The recent reviews have made different recommendations: 

• The 2017 review suggested a rise to 68 in 2037-39, far quicker than the 2044-46 existing plan. This would affect those born between 6 April 1970 and 5 April 1978
• The 2022 review recommended a rise to 68 in 2041-43, a more moderate acceleration amid a stalling of life expectancy increases. It also mooted a possible rise to 69 in 2046-48

The previous Conservative governments acknowledged the recommendations but delayed the decision. The recommendations from the reviews are not binding.

Those most affected under the current legislation and guidance: 

• The rise to 67 affects those born on or after 5 April 1960
• The rise to 68 (between 2044 and 2046) affects those born on or after 5 April 1977