Future generations will have to work longer while younger people may have to carry on to age 70 or beyond. The triple lock looks safe until the end of this Parliament in 2024 but its long-term future is hanging in the balance, too, top pension experts warn.
The State Pension age is currently set at 66 for men and women and will climb to 67 between 2026 and 2028.
It is set to rise again to age 68 between 2044 and 2046, but the Government is now consulting on whether to bring that forward to between 2037 and 2039.
This is part of its second review of the State Pension age, which is designed to keep it fair and affordable as people live longer.
The consultation closed on Monday with a decision due next year. The decision now rests on a “knife edge” as life expectancy increases have slowed since the pandemic, said Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown.
People may be living longer, but their health is often worsening, she said. “Many will simply be unable to carry on working until 68.”
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The cost of the State Pension has now tripled since 2000 due to a combination of the ageing population and triple lock.
The bill hit £101.2 billion in 2020/21, which is around 12 percent of total public spending.
Morrissey said the cost will continue to rise as the population ages. “The Government needs to weigh up how fewer working age people can fund the State Pension for a rising number of older people.”
At some point the Government must act to keep the State Pension affordable, she said. “Younger workers should bear in mind that the State Pension age is likely to be closer to 70 by the time they are nearing retirement.”
The International Centre for Longevity has warned the State Pension age is already “unsustainable” and called for the retirement age to climb to 68 from 2031, then 70 by 2040. That is much faster than the current Government timetable.
It would mean that anybody born from April 6, 1970, would have to work right through their 60s before getting a penny.
Pressure is growing for a State Pension hike sooner rather than later, said Adrian Lowery, personal finance expert at investing platform Bestinvest.
“With huge pressures on the public finances, worsened by the conflict in Ukraine and cost of living crisis, many assume next year’s decision to accelerate the increase to 68 will be waived through.”
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The triple lock could also come under pressure as it adds to the cost of the State Pension, he said.
However, the government will be reluctant to dent its popularity further by scrapping the triple lock as that would be hugely controversial decision, Lowery added.
Younger and middle-aged workers should not rely on State Pension and start saving under their own steam.
Everyone should aim to invest up to 12.5 percent of their pre-tax earnings into a pension, and more if they can afford it. “Those in auto-enrolment workplace pension schemes have a head start,” Lowery said.
Small business owners and the self-employed in the gig economy often have no pension at all and need to kickstart their private savings, he added.
Lowery added: “How much do you need to save? As much as you can afford.”
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