UK Government to raise the State Pension age to 75?

Last modified date

Comments: 15

UK Government to raise state pension age to 75?

News reports claim that the government plans to raise the state pension age to 75. This post talks about my thoughts on the topic.


 

Over the weekend I saw a news article on twitter, suggesting that the current government is planning to raise the state pension age from 68 to 75 over the next few years. On checking Google, I saw a number of similar headlines:

  • Conservatives plot to raise the state pension age
  • Work til you drop!
  • Tory’s plan to raise the state pension age to 75 over the next 16 years

It should be pointed out, however, that this has not been written into law. It’s currently just a suggestion by a right-leaning think tank. Of course, the tabloids never let the facts get in the way of a good story! Nonetheless, pensions have been in the news on and off for years, so it wouldn’t surprise me at all if something similar eventually comes to pass, even if it takes years to get there. The comments sections of these articles were, unsurprisingly, less understanding than I was. They were filled with outrage!

 

A history of the state pension

This prompted me to do a bit of research. You can skip ahead to the next section if you’re not interested in a history lesson:

The Old Age Pensions Act was passed in 1908, providing a means tested benefit to people over 70. 

This was reduced to age 65 in 1925, and was based on contributions paid at work. At this point, the average life expectancy was 55 for men, and 60 for women. Many people never even made it to retirement!

One interesting thing I found was that the women’s state pension age was actually reduced to 60 in 1940. This was because, up until this point, a married couple would only receive a full pension if they were both 65, which usually meant that men had to wait a few extra years before they could claim it all (presumably men usually married younger women back then?).

Pensions then remained more or less unchanged until 1995, where there have since been several changes. First, the women’s state pension age was raised to be equal to men’s. This finished coming into effect last year. Then, in 2007, further rises in pension age were announced. This meant that the age would be at least 68 by the time I was anywhere near being old enough to claim.

Which brings us to today and this new report. According to the ONS, the average life expectancy of a 65 year old in the UK has now increased to 83.5 for men and 85.9 for women.

That’s 20 years of benefits that the government has to fund. According to the report, pensions make up 40% of welfare spending today. It’s no surprise that they want to reduce this expense!

 

Not all jobs are created equal

state pension age raised to 75. Not ideal for surgeons!

Of course, whilst the idea of working in some capacity to old age is arguably a good one, this simply isn’t feasible for all career choices. On the one hand, I’m reminded of some of the professors I have worked with. At 70+, they still lead research groups, travel to conferences and publish relentlessly. They obviously enjoy their job, and it keeps their minds very active and enables them to socialise with a huge number of people. I think that, whatever you end up doing in life and whatever age you are, these are two very important factors in maintaining a healthy mind, especially as old age approaches. 

On the other hand, you have professions that are much more physically gruelling – builders, plumbers, electricians, doctors, nurses, etc. These require a great deal of coordination, strength and dexterity, which I suspect most 75 year olds no longer possess! For that reason alone, I can see why many are up-in-arms about it. From that point of view, it does seem to be an ill-thought out proposal.

 

Gaze into my crystal ball

A crystal ball, will the current state pension age be raised to 75?

To be honest, I’ve half known / half-suspected that the state pension would be very different to what it is now. The government has been saying for a long time that the state pension is unsustainable. 

I’ve always assumed that the government would make changes. I figured the options were either:

  • End the triple lock and allow inflation to erode the value of the state pension
  • Make the pension means tested
  • Increase the state pension age

So, when planning for the future and making my FIRE calculations, I have never taken the state pension into account. If it still exists when I reach that age, I’ll just consider it a nice bonus.

Lets not forget that the state pension is not a lot of money. It’s £168.60 per week, or approximately £8750 per year. It’s enough to just about cover the basics, especially if you are mortgage-free. But it doesn’t leave a lot of wriggle room for if things go wrong, or if you want to get out of the house and meet people!

 

Enter, FIRE

FIRE can minimise the impact of a rising state pension age

Essentially, this is another reason that everyone should be pursuing financial independence, in one form or another.

Sure, the idea of retiring at 30 and never working again is not achievable for the vast majority of the population. Stagnating wages, increasing rent and house prices, job insecurity; the odds are not in our favour!

Having said that, I believe that striving for financial independence is achievable for anyone with a healthy body and mind. And in doing so, you give yourself options and protect yourself from changes like this.

Eliminating debt, overpaying the mortgage, spending less than you earn, investing in yourself and making your money work for you; these are all things that people can aim for and achieve today, and will inevitably make for an easier and more enjoyable life.

Anyway, let’s not forget that the “RE” of FIRE stands for “retire early.” If the state pension age increases to 75, this means that anything below that will be “early.” I may not be able to retire at 40, but I certainly don’t intend to be obliged to work at 70! I’m saving and investing today so that I’ll have options in the future. Whilst I like the idea of continuing to do some sort of work well into my old age, just like the professors I mentioned above, I want this to be completely on my terms. Whether that’s working part time, volunteering, or something else completely, the choice will be mine to make!

In short, this latest report is just noise, and doesn’t affect my own plans. I’m curious to know what others think?

15 Responses

  1. With the current ageing population, I cannot see how Governments can avoid to raise the retirement age.
    It’s been coming for a while and not surprising, I live in France and its been a hot debate here on and off. It always gets the tempers flared up.
    In my opinion, you have to make your own plans for financial independence. Don’t expect a government or anyone else to support you.
    Thanks for writing and sharing!

    • Well, as I said in the article, they could feasibly avoid raising the state pension age by either making it means tested (thereby reducing the number of people who receive it) or reducing the amount that each person gets. I’m just being persnickety though; I agree that with an ageing population, something will have to give in the future!

  2. That’s very annoying news! Theyll probably phase it in slowly. But not unexpected. We are very badly treated in the uk. In france they get double the amount than us at 62!

    Even in office jobs retiring at 75 unrealistic. Problem with retiring at 75 is generally quality of life is low then. Experience with parents and in laws. Either one is ill or having looking after sick partner, or widowed. Not a cheery thought. But good reason to RE and have some quality years of retirement whilst your chances of health are good. That’s my plan when I get to 50 anyway.

    I suppose we are unable to change govt policy ourselves so pursuing fire is logical thing to do as it’s under personal control. Except for those on low/below average earnings may be better off not saving as this simply blocks access to means tested benefits.

    • The French have always done a better job than us Brits at getting money out of the government, haha.

      I agree; those that can work and want to work at 75 should be allowed and encouraged to do so. However, those who cannot work at that age (or, arguably, any age) should be provided for by the state.

      It ultimately shows the importance of being proactive and not sleep-walking through life. Even if we received a state pension at 60, it isn’t enough to have a comfortable life! So some savings are required anyway.

  3. Nice write up. Something has to give. We are living longer and the population is aging (ie less tax payers) and based on the current demographics and cost, the pension is still unaffordable despite recent changes. The Govt can pay it later, pay less or means test it. Or they can raise taxes elsewhere to pay for it.
    The advantage of delaying it is that those people not receiving it are still working (and hence paying tax).
    The difficult issue politically, is that its difficult to take something away from a well motivated group of people with time on their hands (older people vote).
    I think major changes are unlikely in the short term but after the next election, quite possible. Especially when you look at the opposition. Older Tory voters are unlikely to back Labour but could not vote!

    • Thank you Grizgal. I agree, a change is not likely yet, but presumably something will happen eventually. No government wants to be the one to propose this, (as demonstrated by the news today, where Amber Rudd has said there are no plans to raise it above 68 for people entering the workplace today) because it’s easy for the opposition to jump down their throat and score some easy points!

  4. Pension “entitlements” are an interesting issue that often bring out the worst in people.

    A few of thoughts.

    First, those life expectancy figures are at birth, so once a person had successfully run the early childhood mortality gauntlet, they actually often lived a lot longer than the figures suggest at first glance.

    Second, the demographic bulge means politicians who incur the wrath of the grey vote will find themselves swiftly looking for alternative employment. There will be a lot of noise and being seen to be doing something about the unsustainable nature of pensions, but in practice little will actually be done. Old folks vote, particularly when their self interest is at stake.

    Third, social security is supposed to be a safety net catching those who are otherwise unable to support themselves. Without an age pension folks would end up a burden on the state via other means: homelessness, the health services, and prisons.

    The idea that “I’ve worked hard, paid my taxes, now am entitled to an age pension” is wrong headed. Folks who can afford to support themselves, should. Workers don’t receive the dole. Home owners don’t receive housing benefits. Why is the age pension any different?

    Means testing (including the value of the family home) the age pension would go a long way to addressing the affordability issue, without needing to raise taxes or pension ages. I’m a big fan of the social security safety net helping those who actually need it. However, most can and should help themselves first.

    • You are correct that my reference for the 1925 life expectancy was at birth, rather than at 65. Still, the fact remains that life expectancy at 65 has increased!

      Regarding the demographic bulge; I can’t imagine that any politician will try to take away a state pension from those who are already claiming it. However, if they could target those who are 40 and below, they might be able to avoid some of the backlash and get away with it! My parents would’ve been caught out by these proposed changes. Needless to day they were not very happy at the idea of suddenly having to work another 7-8 years!

      “Old folks vote, particularly when their self interest is at stake.” I just wish the same could be said about people my age!

      I agree with your third point, and I think you’ve shown that means testing might be the best way forward. Just like I think that our government should provide a job seeker’s allowance and a disability living allowance for those that need it, it makes sense that it should provide a pension to those who need it most. I think the recent pension contribution changes (i.e. auto-enrolment) will help alleviate some of the strain on the state in the future, but it won’t be enough for some people.

      “I’m a big fan of the social security safety net helping those who actually need it. However, most can and should help themselves first.” Excellently put, Indeedably! Thanks for sharing your insights.

  5. Although I understand the outrage, are any of these outraged people thinking about how they can plug the gap between when they retire and when they start claiming the state pension? Just because age 75 might be when they can draw on the pension doesn’t mean they have to work right up to that age. This is indeed where FIRE comes in, particularly those really planning for RE as it makes us work out what we will do for income when we’re not working.

    I have included the state pension in my FIRE plans – in my calculations, I just used a figure of £7k, don’t increase it with inflation so if they remove the triple lock, it doesn’t really effect my calculations. I’m hoping to skirt under any means testing, as I would think that those people with £1m+ networths (including their homes) will be hit. In any case, by the time I come to claim my state pension, I will have spent most of my FIRE fund so networth will be a lot lower.

    If I am caught in the net, well, plan B then, whatever that will be!

    • I think that, at 50 years old, it makes sense to start including it in your calculations. As a 30 year old though, it’s so far away that anything could happen!

      Let’s hope matched betting still exists in the future, just in case you need that plan B!

  6. I just hope they don’t bring in the notion that private pension should be locked to 5 years under the state pension age, that would be horrendous and go from 55 to 70.

    • That would certainly be very annoying! News like this is a reminder that, whilst the tax relief on pensions is very attractive (especially for higher earners), it’s important to also make use of an ISA and to not lock all of your money away.

  7. This is a hot potato in Scandinavia too. I think that immigrants and refugees are only option and solution for this, as less and less babies are born every year (even though the economy is going strong).. We need more young people to support our economy.

    Luckily, there are enough people in Africa and India who are willing to come here for work. Of course, it’s never too easy for the society to take too many refugees, but it’s probably the only option if we want to keep our current level of welfare.

    – FN

    • You’re quite right, one solution is for an increase in immigration to offset the declining birth rate. It’s been shown that migrants to the UK pay in more than they take out, whereas UK-born citizens (on average) take slightly more than they put in.

      It will be interesting to see if Brexit leads to more or less immigration!

Leave a Reply