For my entire life, the State Pension age for men has been 65. Most people assumed it was set in stone, but suddenly it isn’t.
State we’re in
Last Wednesday, on 6 March, the age at which both sexes could automatically claim their state pension increased for the first time in almost 80 years. Today’s workers will have to work beyond age 65 and will lose thousands of pounds in State Pension as a result.
This historic move is part of a long-term process that will see everybody retire later and later. From October 2020, the retirement age for men and women will be 66, women having seen an even bigger age jump than men. That will rise to 67 by 2028, then to 68 by 2039 (although Labour has committed to reviewing rises beyond 66 if it takes power).
Most people under 55 now think the state pension age will be 70 by the time they are eligible to claim it, according to research from Canada Life.
Lost pension power
So who will this hit? Anybody who is still working. If you now have to retire one year later at 66, you have effectively lost £8,500. You can double that figure if you will retire two years later from 2028 (and add inflation).
So what can you do about this? Absolutely nothing, as far as the Government is concerned. The Treasury is set to spend £96bn on State Pensions this tax year as life expectancy rises, according to the Office for Budget Responsibility, and needs to keep a lid on the costs.
It is perfectly possible to retire at age 65 if you wish, the catch is that you need enough pension income of your own. And you know what that means, don’t you? Saving more under your own steam.
Many people will respond by saying they will carry on working beyond age 65, as more than a million Britons already are. I have heard some brag they will work ’til they drop. The big problem is that other things can get in the way, such as illness, or the need to care for a loved one. Then you may be forced to stop work.
Once again, the answer is clear. You need to get investing now. The one positive is that more than 10 million people are now members of auto-enrolment workplace pension schemes, and get employer contributions and tax relief towards their pension, on top of what they pay in themselves. If you have been opted into a scheme, do NOT opt out. You will regret it later.
One in three middle-aged Britons expects to survive solely on their State Pension, according to new figures from Nationwide. This leaves them with a £68,000 shortfall, which is the amount Nationwide calculates they need to top up their state provision by the £380 a month required to endure a halfway decent lifestyle in later life. You might want a lot more than that.
As my colleague Peter Stephens has calculated, investing just £1.50 per day could double your State Pension, provided you begin early enough. Here’s something else you can do to stop worrying about the state provision. What you can’t do is sit around in the hope that the state will see you through. You now face a longer wait to find out that it won’t.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.