The Department for Work and Pensions (DWP) is set to raise the state pension age from 66 to 67, a change that could cost people in their 40s as much as £20,363, according to new analysis. This adjustment, legislated under the Pensions Act 2014, is being phased in gradually, meaning there is currently no fixed state pension age for those born between 6 April 1960 and 5 March 1961. Instead, the age rises month by month for this cohort.
What Does the Change Mean for You?
Under the Pensions Act 2007, the state pension age is expected to rise again to 68 between 2044 and 2046, affecting those born on or after 6 April 1977. However, reports suggest this increase could be brought forward, potentially impacting individuals currently in their 40s who would have to wait an additional year to claim their pension.
According to Fidelity International, if the rise to 68 were accelerated, those affected could lose out on approximately £20,363 in state pension payments. This figure is based on a projected 4.5% annual increase in the pension amount by 2037.
Expert Concerns Over the Accelerated Timeline
Dr Carole Easton OBE, Chief Executive at the Centre for Ageing Better, has voiced serious concerns about the potential acceleration. She said: “It is extremely worrying if the Treasury is thinking of making the next rise in state pension age in just over a decade’s time. The Government needs to be very careful about making this change.”
Dr Easton highlighted the adverse effects of previous increases, noting: “During the rise to 66, it doubled the poverty rates for 64-year-olds. A recent parliamentary committee report warned the impact is likely to be even bigger now for the current rise to 67.” She added, “Other than the substantial savings the Treasury will make from making people wait longer for their State Pension, it is hard to see what evidence could be used to justify introducing the next rise sooner.”
Financial Implications and Taxpayer Burden
Fidelity explained that the cost of paying a higher state pension must be met by taxpayers, and with an ageing population, this cost is projected to rise rapidly. The company stated: “The cost of paying a higher State Pension needs to be met by taxpayers. Our ageing population means that the cost is likely to rise even more quickly in the future as a higher proportion of the population reaches retirement age.”
Fidelity’s analysis shows the cost of the state pension as a proportion of GDP has been rising since 2022 and is expected to peak this year at 5.06%. While it is predicted to fall in the coming years based on current assumptions, Fidelity cautions that this is uncertain.
What Should You Do if You're Affected?
For those born between 6 April 1960 and 5 March 1961, it is crucial to check your individual state pension age, as it varies depending on your exact date of birth. You can use the government’s online state pension age calculator to determine when you will be eligible.
For individuals born on or after 6 April 1977, the planned rise to 68 could be brought forward, so it is wise to review your retirement plans and consider seeking financial advice to mitigate potential shortfalls.
