Simon Read: If you're 20 now, you'll have to work until you reach 71


Some six million people were put on notice this week that they will have to work for up to an extra year after the increase in the state retirement age to 67 was brought forward by a decade to 2026 in Tuesday's Autumn Statement.

The rise will come seven years after the increase in state pension age from 65 to 66 starts in 2019.

The move was no great surprise as it is broadly in line with rising life expectancy, and similar increases have already been introduced across the world.

But the seven year gap could be significant for younger peoples who are now likely to face an even longer wait for their state pension, John Lawson, head of pension

policy at Standard Life suggests. "State pension age looks like it has developed its own seven-year itch."

He has calculated that if the current policy continues, someone in their early 20s today will not receive their state pension until age 71, while someone aged 40 now may have to wait until they are 68. At present, the state pension age is planned to start to increase to 68 from 2044 which would affect anyone born after 5 April 1977.

Lawson reckons the increase to 68 could be pulled forward to 2033, which would mean that anyone born after 1967 would be affected. He suggests that the age could then be raised again to 69 in 2040, hitting those born after 1974.

Under his reasoning, by 2051, the state pension age could climb to 71, which would affect all those now aged between 16 to 23. However all this – though likely – remains speculation at the moment.

But what is clear is that anyone aged 50 now faces a state pension age of 67 compared to the current age of 65. In fact this week's move will affect all those born between 6 April 1960 and 5 April 1969, with the bulk facing an extra year's work, and some a little less.

Pulling forward the increase in retirement age by almost a decade will save the Treasury about £59bn over a 10-year period, so the move was a certainty. At least announcing it now gives people about 15 years' notice to do something about it.

For the 50-year-old, the increase in the state pension age from 65 to 67 costs £80 per month – in that if they had to save up themselves up to retirement to fill in these missing two years of state pension they would have to start saving now £80 per month until retirement.

For younger people, the amount they need to save to cover the state pension they now won't get is less per month, as they have longer to save. But a 35-year-old still needs to save £35 a month, according to figures from PriceWaterhouseCoopers.

What this week's announcement should really do is send a reminder to everyone that saving for retirement yourself has become crucial. With us all expected to live for longer, all things being equal, most people will need more cash than they are currently planning to have in retirement, to ensure a happy life after work has finished.

In fact, based on the assumptions underpinning the latest population projections from the Office for National Statistics, a man aged 67 in 2028 is now expected to live for 21.4 years on average and a woman for 23.9 years. The Government's plans for the state pension age put life expectancy at 66 for the same group at 20.7 years and 23.1 years.

Governments are clearly focused on cutting back the amount they hand over to us, so the imperative is upon all of us to take up the slack. Further, if we really want to be able to have a worthwhile retirement, then putting more cash away now becomes crucial.

If the fear of not having enough cash in retirement isn't enough to encourage you to start or boost your pension savings, then bear in mind the tax advantages, which weren't cut in Tuesday's Autumn Statement, despite concerns they may have come under attack from the current Chancellor.

In simple terms, for every £8 you stash into a pension, the Government adds a couple of quid turning it into a tenner. If you're a higher rate taxpayer the incentive is even more attractive as you effectively need only put £6 into a pension to see the Government's contribution turn it into a tenner.

That doesn't mean you should put all your savings into a pension. The main drawback is that the cash is locked away until you retire and you will need some money before then. So you should be saving into a tax-free individual savings account or something similar – which offers easy access – to give you the flexibility of having cash to draw on if you need it.

When it comes to pension savings, you could be building up a pot for decades. So take the time to think about where to invest your money and talk to experts about your options.

With good planning you may build up a large enough fund to be able to retire early if you wish, which will mean the Government's state pension age will become irrelevant.

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