Review of state pension age announced by government
The Department for Work and Pensions (DWP), led by Minister Liz Kendall, has initiated a review of the state pension age to assess its sustainability and fairness.This review could lead to an increase in the age at which individuals with sufficient National Insurance Contributions (NICs) can claim their state pension.
Currently, the state pension age is set at 66 for both men and women. This is scheduled to increase to 67 for those born after April 1960, effective from 6 May 2026.
A further rise to 68 is planned for the 2040s, although this has not yet been legislated.
The Government is required by law to review the state pension age every six years to ensure the system remains affordable.
State pension challenges
The state pension system has faced growing scrutiny due to its rising costs, which currently stand at approximately £150 billion annually. Projections suggest this figure could exceed £170 billion by the end of the decade.
The ‘triple lock’ policy, which guarantees an annual increase in the state pension based on the highest of inflation, average earnings, or 2.5%, has been identified as a significant factor driving these costs.
Critics argue that this mechanism may render the system financially unsustainable by around 2034.
Raising the state pension age is seen as a less contentious option compared to reforming the triple lock or reducing other benefits, such as the winter fuel payment, as it affects future retirees rather than current ones.
The government is expected to announce the outcome of this review by 2029, following the previous report in 2023.
Preparing for retirement
The Government provides a useful tool for you to check your current state pension age.
But a key concern for many is the risk that the state pension may not provide sufficient income for a comfortable retirement, or that it may not be available by the time younger workers retire.
To mitigate this, individuals are encouraged to take proactive steps to secure their financial future. Contributing to a private or workplace pension is one of the most effective ways to build retirement savings. Pensions offer tax advantages, including relief on contributions, which can significantly enhance the growth of your savings over time.
However, it is equally important to ensure that your pension investments are structured to support long-term growth and income. This can be done with the assistance and ongoing help that a financial planner can provide. A planner can also help mitigate any tax issues which may arise and look at other areas of your portfolio to ensure it is all working in the right way to best prepare you and your money for retirement.
By planning and maximising contributions to personal or workplace pensions, individuals can reduce their reliance on the state pension and better prepare for a financially secure retirement.
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