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
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
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!
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?