Is the government about to raise the retirement age again?

It is a politically toxic topic for the Conservative party and its older voters says Sean O’Grady

Meanwhile, existing retirees are heading for a 10.1% increase to the state pension from April (PA Archive)

Is the government once again going to push the age at which we can claim the state pension?

That’s reportedly what is being discussed inside government. The Treasury would like to increase the age of eligibility to 68 as early as 2034 or 2035. Currently, those born before 5 April 1960 can still expect to retire at 66. Those born after that date will be looking at a phased introduction of the age of 67. The next increase, to 68, is only due to come in between 2044 and 2046. This will affect those born after 5 April 1977, thus affecting workers in their mid-40s and below. If this change is brought forward, as is being floated, then those in their early 50s will have to work a little longer or save a little harder, if they can.

How would it work?

If you were born in 1980, presently you can expect to retire at 68 in 2048.

What’s the problem?

Not much if you’re fortunate enough to have a substantial defined benefit occupational pension, linked to your salary and inflation-proofed, large savings or a personal pension pot, or a valuable mortgage-free property.

However, if you have none of those things you will probably have to work for longer or make further provision now for your senior years, such as saving more in a personal pension, a suitable savings vehicle, or in additional contributions to a company scheme. You will somehow have to fund an extra year, to cover the first year of the state pension which has been postponed. The personal finance website Interactive Investor says bringing forward the increase to 68 from its latest date of 2046 to 2034 could mean a lost year of full state pension of £13,594 for people now aged 57, rising to £16,902 for those now aged 46. That deficit from what they may have been planning for will have to be found from somewhere, as the DWP won’t be paying out.

Why is it being changed?

The short answer is that the government needs to save money. For every year it ‘postpones’ the state pension, the Treasury ‘saves’ £10bn, which makes a contribution to reducing borrowing, maintaining public services or cutting taxes.

The longer answer is demographics. Such is the trend towards an ageing population, a relatively smaller working population and poor productivity growth, that the dependency ratio is going to become an increasing problem. One easy way to ameliorate it would be to permit more immigration, as migrants tend to be younger and with long working lives ahead of them. But the politics of that is difficult.

Is this a trend?

Yes. For decades, the age at which people were eligible for the state old age pension was 60 for women and 65 for men, reflecting differentials in life expectancy. From 2005, however, a programme to gradually increase the state pension age and to make it the same for both men and women was put in place, and then periodically accelerated. Those approaching retirement age can be forgiven for feeling as though they are chasing a rainbow, and one with a shrinking pot of gold at the end of it.

Who will this hit hardest?

Disproportionately it will have an impact on women now in their early 50s. This is because they will have the least time to prepare because they tend to have smaller private or final salary scheme benefits (having worked fewer years and earned less than men in many instances) and they are less physically able to carry on than males if they have been in heavier and more demanding work, such as in nursing or a factory. Those in the north of England and other less wealthy regions have incomes below the national average, less valuable homes and, in some cases, lower life expectancy. In short, it is a regressive move, and arguably unlawful in its discriminatory effect on women under the Equality Act 2010.

What about the Waspi women?

The 1950s-born women hit by the previous rounds of changes should not be affected by this next shift of the goalposts, but they serve as a painful example of what can go wrong when the state pension age is changed. Many women in their 50s fell victim to the earlier moves to equalise the state pension age as they were unaware of the reforms, and were left badly short as they hit the old retirement age. It remains a national scandal.

What are the politics of this?

Toxic, for the government. The Conservative vote is heavily skewed towards the over-50s, and they are precisely the voters who will feel the hardest done by, women especially. Existing pensioners, the hard core of the Tory base, won’t be so concerned, provided the triple lock of inflation-proofing is maintained (which may prove too costly to keep after the next election).

If the over-60s stick with the Tories, it will be small consolation for party campaigners – because of demographic realities, shall we say – and the youngest voters seem not to be drifting to the right with age as previous generations did.

For those who feel they’ve been robbed of yet another year of the state pension, as well as its protection against future inflation or value, there may be a lasting resentment, particularly when it is being imposed by Rishi Sunak, Jeremy Hunt and Nadhim Zahawi, all fabulously wealthy by any standards. Labour and the other opposition parties will be asked the usual questions about how they’d deal with the pension timebomb instead.

What’s next?

A regular review is due to report in May, but Hunt may want to announce something in the Budget on 15 March for the purposes of making the prospects for debt and the public finances sound better. However, it might still be electorally wise to wait until after the local polls on 4 May.