What is the UK state pension forecast? Retirement calculator, government pension age review explained
While Rishi Sunak’s government delayed a decision on the official retirement age until 2026, a report it commissioned has suggested when younger workers could retire
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In his Spring Budget, Chancellor of the Exchequer Jeremy Hunt announced two reforms to private pensions in a bid to get more early retirees back into the workforce to boost economic growth. This included scrapping the lifetime allowance - a controversial move that’s more likely to benefit wealthier people.
Those who have retired before the state pension age have also been targeted by Bank of England governor Andrew Bailey. He said in a speech that the trend of people leaving work in their 50s and early 60s is pushing up inflation, and therefore, interest rates.
But arguably the biggest intervention was a government decision not to raise the retirement age to 68 in advance of the current legislated timetable. At the same time, a newly published independent report into the potential changes the government could make to the pension age could make a significant difference to the working lives of younger workers.
It all comes as people who rely on the state pension are set to see a large increase in their weekly incomes from April - although the rise will not make up for the losses sustained as a result of record inflation.
So, what has the government decided - and what could the independent review of the state pension mean for you?
What was the pensions review outcome?
By law, the UK government of the day has to conduct a review of the state pension age every six years. Rishi Sunak’s administration had been considering what to do about it since January 2023, with reports suggesting Chancellor Jeremy Hunt favoured bringing the current legislated age rise to 68 forward from 2046 to 2035.
The outcome of the government’s pensions review was that it decided to delay making a decision for another three years. It means a large number of the current and future workforce will have to wait until 2026 to find out how long their working lives are likely to be. The reasons for its decision were that life expectancy growth has slowed across the UK, and that there is uncertainty about what the impact of Covid-19 has been on life expectancy and the UK’s finances.
Although the government did not make a decision, an ‘independent’ report carried out by Conservative peer Baroness Neville-Rolfe may influence the outcome of the next review of the state pension age in 2026. One of the report’s key recommendations said the government should consider changing how it decides to set the pension age.
Instead of setting it by using average life expectancy statistics and an arbitrary work to retirement ratio that means the average person should not be retired for more than a third of their adult life, the report suggested setting it so that pensions cost no more than 6% of the UK’s GDP.
Such a cap would be 25% higher than current spending on pensions (roughly 4.8% of GDP) but well below the projected public spending required by 2071 (if current rules stayed in place) of 8.1%. It basically means the government would have to limit eligibility for the state pension by increasing the state pension age.
However, this recommendation has been criticised by some as its application across the UK would not take into account regional and national differences in life expectancy. For example, while it is currently 79.4 years for men and 83.1 for women in England, it is 76.8 and 81 in Scotland.
It means workers in areas with lower life expectancy may have health conditions worsened by having to work longer - an issue which could ultimately prove to be expensive to the UK economy. The government said in its review that it “is aware of growing inequalities in life expectancy” and that it “is taking action to tackle this”.
When can I retire?
As the government did not announce a change to the state pension age timetable in March, the current legislated schedule remains in place.
This means that workers who are currently in their mid-40s up until their early 60s will have an official retirement age of 67 (which will come in from 2028). Meanwhile those aged 45 and under will be able to officially retire at the age of 68 (fully comes in from 2046).
To see exactly how the state pension age is changing for you, here’s NationalWorld’s calculator. It only takes into account the existing legislated timetable.
If the Neville-Rolfe recommendations are brought in at the next review in 2026, it would mean those aged 44 and under will see the state pension age gradually rise to 69, while people currently in their early 40s would have a retirement age of 70.
The 6% of GDP limit would then lead to several rapid changes in the retirement age. It will have risen to 71-years-old by 2055, 72 by 2059 and 73 by 2063. It could then climb as high as 74 by 2067 - a change that would impact people currently aged 30 and under. Here’s another calculator reflecting these potential changes.