For most people, the State Pension, currently £155 per week for those retiring after April 2016 with a full history of National Insurance contributions, will provide most of their income in retirement.
Workplace pensions provide a valuable top up to this, helping to lift them off the poverty line and into a more comfortable retirement. But because that bedrock of State Pension is so fundamental to our retirement income, the age at which we are allowed to draw it is crucially important.
Two changes are already happening to the State Pension Age, which for a long time had been stable and fixed at age 65 for men and age 60 for women. First, as part of the national drive to treat both sexes equally in the workplace, male and female State Pension Ages are being brought together. Secondly, to reflect increases in life expectancy, State Pension Age is rising. Those that retire after 6th April 2028 will have to wait until their 67th birthday before they receive their State Pension.
The upwards trajectory is gradual but relentless, and it’s steeper for women than for men because it’s a seven year increase for them. To help individuals work out exactly when they will be eligible for to draw their State Pension Age, the Government has created an online tool which can be found here.
All of the above has already been legislated by Parliament and so is definitely going to happen. There have been some protests, particularly by women who had not received any early warnings of this and for whom the delay came as a nasty surprise. But Government has insisted that the timetable will be stuck to come what may.
Now attention has been turned to what happens after 2028. Twelve years away may seem like a long time, but the essence of successful pensions is long term planning so John Cridland has been appointed as an independent reviewer to take a long hard look at the evidence.
Cridland is at the halfway point of his work, and has just published lots of his evidence, although he’s keeping his cards high and will not reveal his recommendations until next Spring. But what he has found is interesting.
Generally we are living longer and that increases the cost of the State Pension for Government. But worse still, the “baby boomer” generation, that bulge in birth rates between 1945 and 1966, means that Government will have rather more pensioners to pay out to. These cost pressures will tempt Government to carry on increasing State Pension Age after 2028.
Cridland also observes several disadvantaged groups who fare less well in pensions than their opposites. These include women, those from deprived social backgrounds, disabled people and people of ethnic origin. But his analysis then finds that it’s not the State Pension system that is treating them unfairly, it’s the labour market which gives them lower pay and hence lower pensions.
When thinking about the future of the State Pension, it’s essential to consider how it will interact with occupational pensions and, in particular, auto enrolment.
So far, 6.9 million people have been auto enrolled, but 6 million of the lowest paid workers with the heaviest reliance on the State Pension have been excluded. The 2017 review of auto enrolment and Cridland’s work therefore need to be examined together. In the future, a greater proportion of the population will be covered by auto enrolment and a larger proportion of workers’ salaries will be saved. This could provide essential ‘bridging’ funds for people who want or need to retire before their State Pension funds pay out and provide a much needed top up to those who may not qualify for the full State Pension. Either way, auto enrolment will be an essential piece of the State Pension reform jigsaw and shouldn’t be overlooked.
Adrian Boulding is Director of Policy at NOW: Pensions