Government facing tough decision that could affect when you get your State Pension

A look at why the government faces a ‘tricky balancing act’ on State Pension policy and how this could affect when you can access your State Pension.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Older woman worried about the future

Image source: Getty Images

The age at which people receive the State Pension has been increasing steadily as people live longer. The State Pension age rose to 66 for both men and women in 2020, with two further increases currently set out in legislation.

However, according to experts, the government could be facing a “tricky balancing act” on State Pension policy after new figures released by the Office for National Statistics (ONS) revealed that the rate of life expectancy increases is slowing. Here is everything you need to know.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!


What does the new ONS data show?

Hargreaves Lansdown has analysed the new life expectancy and population data from the ONS and highlighted the following:

  • 13.6% of boys and 19.0% of girls born in the UK in 2020 are expected to live to at least 100 years of age. This will increase to 20.9% of boys and 27.0% of girls born in 2045.
  • Although life expectancy improvements have slowed down, the UK population is continuing to age.
  • The number of people of pensionable age is expected to increase to 15.2 million by mid-2045, up from 11.9 million in mid-2020.
  • The working-age population, meanwhile, is expected to grow at a much slower rate, from 42.5 million to 44.6 million.
  • The old-age dependency ratio (the number of people of pensionable age for every 1,000 people of working age), is expected to rise to 341 by mid-2045, up from 280 in mid-2020.

What does this mean for the State Pension age?

According to Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, ‘pension power’ is on the rise. This is evidenced by the increasing proportion of the population expected to live to 100.

But while it’s wonderful that some people will get to live longer lives, the fact that Brits are also having fewer children means “fewer people shouldering the burden of a much larger State Pension bill”. This, she claims, leaves the government with a “tricky balancing act.”

In recent years, the State Pension age has risen rapidly to accommodate this. However, the situation is a bit trickier now, according to Morrissey. This is because life expectancy does not appear to be increasing at the same pace as it did previously.

In 2014, the ONS believed that by 2028, the year in which the State Pension age is set to rise to 67, the average 67-year-old man would live for another 21.1 years while a woman of the same age would live for a further 23.1 years. The ONS has now revised these figures. The average life expectancy of a 67-year-old man or woman in 2028 is now 8.7 years and 20.8 years, respectively.

A government review of the State Pension age is currently underway. One of the main items of discussion is whether to bring a planned rise in State Pension age to 68 forward to 2037/39 (instead of 2044/2046).

On the one hand, the ONS’s recent downward revision of life expectancy could put a stop to this proposal. On the other, the larger State Pension bill that’s likely to be brought on by an ageing population may lead to the review recommending the hastening of the State Pension age increase.

We won’t know the findings of the review until 2023.


How can you protect your retirement?

Are you worried about how potential State Pension age and life expectancy changes could affect your retirement? Well, here are two steps you can take to make sure that you are as financially prepared as possible.

1. Boost your pension

Living longer or receiving State Pension later than expected means that you need to have a much bigger pension pot to support you. One way to boost your retirement pot is to increase your contributions to your workplace pension, if possible.

When you increase your workplace pension, some employers will also increase what they pay in. Additionally, making extra contributions to your pension scheme can provide an immediate boost to your retirement fund in the form of tax relief.

2. Invest wisely

Are you relying solely on your savings for retirement? Unless you’re getting a good return on these savings, it might be difficult to save enough to cover your retirement. You could find yourself with a shortfall if you also happen to live longer than you expect.

In the current low-interest-rate environment, consider investing some of your savings in assets with the potential for higher returns. For example, though they are riskier, stocks and shares have historically delivered better returns than savings accounts and could be an option worth looking into.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »