One of the most significant issues to  emerge from the Autumn Statement  was a further rise in state pension  age. The Government unveiled plans  to bring forward the increase in the  age at which the state pension will  be received. The state pension age  will now increase from age 68 in  2036, affecting anyone who is aged  46 or under today. The state pension  will then reach age 69 in 2049,  affecting today’s 33 year olds.

The changes will affect both men  and women. Women in their fifties  have already been disproportionately  impacted by the increase in state  pension age. A woman born in 1951  would already have begun to receive  her state pension aged 61, back in  2012. Conversely, a woman born in  late 1954 will not receive her state  pension until age 66 in 2020. Once  the pension age for men and women  is equalised in 2018, the state  pension age will then rise, reaching  66 by 2020, before increasing further  in future years.

The Government has made these  changes as there are no longer  sufficient taxpayers to support the  number of pensioners. The  impending retirement of the large  “baby-boomer” generation has  brought this issue into focus. In  addition, life expectancy increased  dramatically throughout the 20th  Century. The first state pension was  introduced in 1908 and was only  paid to people aged 70 or more. At  that time, only one in four of the  population reached aged 70, and life  expectancy at that age was just nine  years. Life expectancy in retirement is now around 20 years. It was not  until 1940 that the state pension age  was reduced to 65 for men and 60  for women.

The current state pension will also be  reformed into a flat rate scheme  known as the single-tier state  pension, which comes into effect in  2016. When this was announced the  pension was set at £144 per week,  and this figure is intended to  increase with inflation each year. It is  worth considering how much it  would cost an individual to “buy” the same level of income from the open  market, through the purchase of an  annuity. Purchasing such an annuity  for a 65 year old would require a  pension fund of around £201,800.  The same annuity for a 68 year old  would require around £181,300.  Whilst this calculation is rather crude,  it could be argued that delaying the  state pension age presents a saving  for the Government of around  £20,500 per pensioner. Further  changes to the state pension age  cannot be ruled out as the  Government attempts to tackle the  fiscal deficit and the national debt. 

Recent years have seen the  introduction of pension autoenrolment. All employers now must  enrol the majority of their staff into a  personal pension arrangement.  Employees are able to opt out, but  must take certain steps in order to  do so. The change to state pension  benefits, combined with the  introduction of auto-enrolment, allow  the Government to place the onus  on individuals to provide for their  own retirement. A number of further  proposals for changing the state  pension age have also been  suggested by various politicians.  Such suggestions include calculating  state pension age based on region  or occupation. It remains to be seen  if any of these proposals come into  force.

The state pension age is a major  factor in determining when people  retire, with the majority of annuities  historically purchased at state  pension age. Retirees may therefore  be at the mercy of future  Government policy if they have not  taken steps to provide for  themselves through private pension  arrangements or other savings.  Government policy is moving away  from the “cradle to the grave”  approach and towards greater  personal responsibility. At Bond  Dickinson Wealth Limited our pension specialists can provide  advice to ensure that your pension  fund is well invested, well funded and  used to release income in the most  appropriate way.