Think-tank calls for a faster State Pension age increase

A look at the current review of the State Pension age and alternatives offered by a think-tank on the impact of longevity on society.

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

In 2022, the basic State Pension will rise to £141.85 a week, whilst the new State Pension will be £185.15. The latter is only payable to people who reached the State Pension Age (SPA) after 6 April 2016. Official statistics show that 57% of an average single retiree’s gross income is made up of the State Pension. The figure goes down to 37% for a pensioner couple.

In comparison, income from work-related pensions account for 27% and 32% for a single retiree and couples, respectively. Currently, a significant proportion of pensioners are depending on regular State Pension payments. However, it is widely acknowledged that this is not enough to live on. 

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!

[top_pitch]

What does the government plan for the State Pension Age?   

The next State Pension Age review was announced by the government last month. Currently, the plan includes two increases. The first is due to take place between 2026 and 2028, and the second between 2044 and 2046. These will increase the SPA from 66 to 68 over two periods. However, the last review in 2017, proposed for the plans to be brought forward to 2037 and 2039. 

Since 2000, the State pension has seen a three-fold increase, and it currently costs UK taxpayers over £100 billion. The International Longevity Centre-UK (ILC) argues there could be a way to keep the costs down. According to the think-tank, an increase in the State Pension age could prevent costs from rising further. That said, the way this is calculated will prove instrumental.

What are the alternatives? 

The ILC provides a comparison of the costs and timetables of setting the State Pension age up to 2045. This was done by utilising life expectancy data that was based on the latest ONS national projections and the year of birth:

[middle_pitch]

1. Spending the same number of years in retirement as previous generations

The first option is for future generations to spend the same number of years in retirement as previous generations – on average, 22.5 years. This means that an increase in the State Pension age to 68 would come two to four years earlier than currently planned (around 2041). Also, this would save the government somewhere between 5%-6% more than the current plan.

2. Keeping a constant ratio between people in work and those at or above the State Pension age

“Fiscal balance between taxpayers and pensioners” is what this second option is all about. With it, a rise in the State Pension age would come significantly quicker than current plans, with increases to 68 by 2031, 69 by 2034 and 70 by 2040. The savings would also increase significantly after 2030, reaching 16% by 2040. 

3. Spending a third of adult life as a retiree

This third option would deliver the slowest increase in the State Pension age, reaching age 67 in 2040. However, in comparison to current plans, this option will represent a higher financial burden for the government, being 7% more expensive between 2027 and 2033.

4. Link the increase in life expectancy to increases in the State Pension age

This method would be cheaper than current plans, with a 6% saving after 2030 that could rise to between 12% and 16% after 2035. This would involve maintaining the current proportion of the population to reach and live beyond pensionable age (85.5%). This means the State Pension age would reach 68 by 2032, 69 by 2038 and 70 by 2042. 

No matter what, the next State Pension Age Review will likely impact everyone in the UK. According to Professor Les Mayhew, head of global research at ILC, for the State Pension age to be “intergenerationally fair and fiscally sustainable”, we are likely looking at another increase between 2030 and 2045.

So, in reality, the question is not ‘if’ but rather ‘when’ and ‘by how much’. 

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 »