As the population continue to age, the government has already announced that the age at which individuals can claim their State Pension is to rise. The pension age is set to rise to age 66 in 2020, age 67 between 2026 and 2028 and then age 68 between 2044 and 2046.
Now, a leading think tank has made waves by suggesting that the government should raise the pension age to 75 by the year 2035 in order to boost the economy.
Are they right, and is this even possible? We look at the proposals and give you a useful reminder that it’s necessary to claim your State Pension when you reach retirement age.
Think tank proposes the government should raise the pension age to 75
From December 2018, the State Pension age for both men and women has started to increase and will reach 66 by October 2020.
Now, the Centre for Social Justice has proposed increasing the pension age from 65 to 70 by 2028 and then to 75 by 2035. The think tank, chaired by former secretary of state for Work and Pensions, Iain Duncan Smith MP, says that Britain can no longer afford the current plan to raise the pension age to 67 in 2028 and then 68 by 2046.
The report Ageing Confidently – Supporting an ageing workforce, argues that the age at which savers can retire needs to be accelerated further, as the State Pension is the largest single item of welfare spending in the UK, accounting for 42% of all benefits in 2018.
The State Pension bill has increased from £17 billion in 1985/86 to £92 billion in 2016/17, representing an increase from 3.9% to 4.6% of GDP. In 2018, the Office for Budget Responsibility predicted spending on the State Pension would rise to 5.6% of GDP by 2023 – an increase of £20 billion.
Adding to this is the fact the country is “witnessing a significant demographic change,” since an increase in life expectancy and a decrease in the fertility rate means that older people make up a growing proportion of the population and could be in the majority by 2035, the think tank stated.
To ensure the older people continue to make an essential contribution to the economy as workers, carers, taxpayers and volunteers, the Centre for Social Justice has made a number of proposals:
- Increased access to flexible working
- Increased access to training opportunities through a ‘personal learner account’
- Enhanced healthcare support through improvements in occupational health, training in mental health first aid and further support for those aged 55 and over from the Work and Health Programme
- Implementation of employee-tailored ‘mid-life MOTs’
- The initiation of an ‘Age Confident’ scheme that includes guidance regarding workplace flexibility, workplace adjustments, age discrimination, training and mid-life MOTs.
Assuming that these initiatives are introduced, the think tank then suggests that the State Pension age should be raised.
It says: “The State Pension is an important benefit that provides security to those who have retired. If we expect this benefit to continue along with other public services, a sustainable State Pension age must be introduced.”
Experts question timescale of proposed pension age rise
The proposal to raise the pension age to 75 has come under fire from experts, with former pensions minister Ros Altman going as far to call it ‘chilling and immoral’.
The government has also been warned it would mean the UK would have the highest State Pension age in the developed world.
Jamie Jenkins, Head of Global Savings Policy at Standard Life says: “While the cost of the State Pension has continued to rise, it is now largely under control through a combination of raising the age at which it is payable and the amount by which it increases each year.
“Increasing the age at which it is payable to 75 would be a huge departure from the agreed policy of giving people ten years’ notice for even the gradual changes already announced. It would likely become the highest State Pension age in the developed world.
“It would effectively change the purpose of the State Pension from an income in retirement to an insurance policy against old age.”
Helen Morrissey, pension specialist at Royal London agrees. She says: “While such proposals will undoubtedly save money, raising State Pension age so quickly will cause huge issues for many retirees who will not have been given adequate time to prepare.”
Don’t forget to claim your pension
If you have made private provision for your retirement, then the State Pension might form a small part of your overall retirement income. However, at almost £170 per week, it’s important that you claim your State Pension when you reach retirement age.
The key message here is that you have to ‘claim’ your State Pension. Many people believe that they will automatically receive a pension when they retire, when the reality is that if you do not actively claim it, the money will automatically be deferred.
Around four months before you reach State Pension age, you should receive a letter from the Pension Service informing you of how to claim. And, if the Pension Service does not hear from you, it will automatically defer your payments.
Under rules introduced in 2016, you need 35 years of National Insurance contributions to qualify for a full State Pension which is currently £168.60 a week.
Steve Webb, Director of Policy at insurer Royal London, said: “If you are over pension age and have not received anything, you should call the Pension Service. If it does not hear back, the Pension Service assumes that taxpayers want to defer their State Pension. But the letter may not have reached its destination.”
A Department of Work and Pensions spokesman said: “We want everyone to be able to claim what they are entitled to and have a wide range of channels where people can get information and advice.”
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