Teenagers and those in their twenties have been given a hint of their eventual state pension age in an analysis conducted by the Office for Budget Responsibility (OBR).
The OBR, the Government’s economic forecaster, underlined how rapidly the age may need to increase, to cope with the cost of an ageing population, as The Telegraph reported today.
The state pension age is already rising but the ages are yet to be set in stone. Some proposed changes over the next few decades are waiting approval and beyond that the age will be linked to average anticipated lifespan.
What many people don’t realise is that this could also affect the “private pension age”, currently 55.
The state pension age is currently 65 for men and 62 for women. The latter will keep steadily rising every few months and equalise at 65 for men and women in 2018. It will then increase every few months, reaching 66 by 2020. The next planned increase, towards age 67, will start in 2026 and conclude in 2028.
So anyone aged 59 or under will face a retirement age of between 65 and 66. Those under 53 will have to wait until age 66 at least. Finally, those 52 and under will take a pension no earlier than age 67. [Read more on the current timetable of pension age changes]
Beyond that, the Labour government set a date of 2046 for the rise to 68 but the Coalition has set out plans, yet to be approved, to do this 10 years sooner.
The move to 69 will also be accelerated, probably to 2049, the Chancellor, George Osborne, announced in the Autumn Statement in December 2013. Previous predictions, put together for The Telegraph by pensions consultants Towers Watson, suggest those aged 47 and under will be affected.
The exact pace of the rises is yet to be passed as law. The Chancellor has said the payout should last “a third of adult life” (beginning from age 20), which could hold back future increases. At least ten years’ notice will be provided and changes will be phased in over two years each time.
The rate at which British life expectancy is rising has slowed. While there were sharp improvements in mortality in 2011, there was a lag in 2012 and early 2013. This is important, as the Government has said it will monitor life expectancy and make adjustments to the state pension age accordingly.
The latest state pension age prediction
The OBR said: “State pension costs will increase from 5.5pc of GDP in 2018-19 to 7.9pc of GDP in 2063-64 as the population ages. Spending is lower by the end of the projection than last year. The projection has been pushed higher by the updated population projections, but reduced by the Government’s policy of linking the state pension age (SPA) to longevity. We assume that this brings forward the rise in the SPA to 68 and introduces rises to 69 and 70 within the projection horizon.”
The OBR published in its analysis, which is only to calculate the impact on Government finances, a fresh estimate based on three scenarios of life expectancy, worse than current predictions, central and better. If Britons become dramatically healthier and live longer, the state pension age could be 75 by 2064.
When will today’s children retire?
The state pension age should hit 70 by 2063 under current estimates, affecting those under 20. But then the age would keep rising. Pensions analysts at Hargreaves Lansdown have said children born in 2063 can expect a pension age of 74.
What will be your “private pension age”?
Private pensions and money in company schemes can be accessed from age 55. The biggest perk is that 25pc can be taken tax-free. Sweeping changes to the system were announced in the 2014 Budget, giving far better access to pension money. From next April, you will be able to withdraw all your money, although you will need to pay tax on it, as if it was income.
The plans also included a provision to increase the age of access from 55 to 57 in 2028. The exact date was not announced but it is likely to affect anyone aged 40 or younger.
What was less widely reported was that the Government also said it “was keen to hear views from respondents about whether the minimum pension age should rise further to allow more time for people to accumulate pension wealth before they reach retirement.”
Guidance for this later retirement was even stated, suggesting the pension access age should be “five years below the state pension age instead of ten years”.
For those aged 40 and under, facing a state pension age of 68, it would mean access to your pension pot is delayed until 63. The Telegraph understands the industry will tell the Treasury that such a plan would undermine the incentive to save but it could still plough ahead with the proposal anyway.