The UK should increase its state pension age to 68 and scrap the so-called ‘triple lock’ that decides increases in payments, according to a report published today.
The widely anticipated review of the taxpayer-funded state pension recommended that the age at which people can claim benefits should be increased further than the government has planned so far, wrote John Cridland, author of the review and former director general of the Confederation of British Industry, a business organisation.
He said: “A sustainable state pension means a later retirement age together with a longer working life, so that on average going forward, people living longer spend the same proportion of time in work and retirement.”
Under current plans, the state pension age will increase to 66 for both men and women by October 2020. It will rise again to 67 between 2026 and 2028.
Cridland’s report recommended an additional increase to 68 to be phased in between 2037 and 2039.
The triple lock – which guarantees that payments increase by the higher of inflation, average earnings increases, or 2.5% – should be abandoned in order to reduce the impact on future government finances, Cridland argued.
According to the review’s estimates, the UK would spend the equivalent of 6.7% of its GDP on the state pension in the 2066-67 financial year if it adopts the review’s age increase. Abandoning the triple lock and just linking pension increases to earnings data would reduce this figure to an estimated 5.9% of GDP.
Cridland acknowledged that future increases in the state retirement age would be “harder to bear for the least advantaged, and for others like carers, who are less able to work for longer”.
He proposed re-introducing a form of means testing a year before retirement, once the pension age hits 68, “for a defined group of people who are unable to work through ill health or because of caring responsibilities”.
“Working together, we have a duty to those who come after us to try and make the future both fair and sustainable,” Cridland said.
A separate report from the Government Actuary’s Department (GAD), also published today, outlined two scenarios for the state pension age, one of which could see it raised to 70 by 2054. This was in part due to an expected doubling in the ratio of pensioners to people of working age by 2064.
The Cridland review’s other recommendations included the introduction of a “Mid-Life MOT” (a reference to the UK’s annual testing regime for road vehicles). The proposal was aimed at helping workers to review their retirement prospects and provisions.
The review also recommended that all employers introduce a “basic care policy” for retirees, and that the government introduce more support and flexibility for carers.
Graham Vidler, director of external affairs at the Pensions and Lifetime Savings Association, welcomed the review’s main recommendations but expressed concern that it would increase the state retirement age too quickly.
“This proposal will hit people in their late 30s and early 40s – the very group who are too young to have benefitted from final salary pensions and too old to benefit in full from automatic enrolment,” Vidler said. “The government needs to fully consider the consequences of this early rise for those who cannot stay in work until their late 60s.”
Gregg McClymont, head of retirement savings at Aberdeen Asset Management and a former shadow pensions minister, said increasing the state pension age “raises huge issues of fairness”.
“For those who spend their working lives doing hard manual work, 50 years on the job will often be impossible,” he said. “It would be much better to set the entitlement to a state pension on the number of years a person has paid their National Insurance contributions, rather than on age. This would mean that those going to work straight from school will reach their retirement age earlier.”
The government is set to consider the findings and recommendations of the Cridland review and the GAD’s report.
Announcing both reports, the Department for Work and Pensions said: “No new changes to state pension age will come into effect before 2028 and the government is committed to maintaining a state pension that is fair for all generations and helps to provide for the cost of living in retirement. Part of this commitment to fairness includes providing 10 years’ notice of any changes to the state pension age.”