State pension age should go up again, report recommends

Millions of workers in their early 40s face having to wait an extra year to collect their state pension if proposals made in an independent review are given the green light.

Former Confederation of British Industry (CBI) director general John Cridland, who was appointed as the Government's independent reviewer of state pension age (SPA) last year, said the SPA should increase from 67 to 68 by 2039 instead of 2046.

The review also recommends scrapping the Government's 'triple-lock' guarantee, which states the basic state pension will rise by 2.5%, by September's Consumer Prices Index inflation figure or by average earnings, whichever is higher.

Meanwhile, pension commentators said that a separate report from the Government Actuary's Department meant that people aged 30 or younger may eventually be forced to wait until they're 70 to draw their state pension.

Check out our Guide to Taking Your Pension for full info on what to expect.

Review calls for planned SPA rise to be fast-tracked

The SPA is already due to go up in stages, with a rise to 67 by 2028. The next increase to 68 is not due to happen until between 2044 and 2046.

But the review said the rise to 68 should happen seven years earlier than planned, providing greater "intergenerational fairness", and helping the fiscal sustainability of the state pension.

The report, focusing on SPA arrangements beyond 2028, will help inform the Government's review of the SPA, due in May.

Speaking to MoneySavingExpert.com last month, Pensions Minister Richard Harrington refused to rule out a future SPA increase. He said: "It's Government policy that 10 years' notice will be given, so nothing will be happening anytime soon. But a lot depends on longevity and things like that."

More money required to support future pensioners

Cridland's report said the state pension is a "pay-as-you-go" system – meaning today's workers pay for today's pensioners.

Today, there are 305 pensioners for every 1,000 people of working age. By the time people approach retirement nearing 2050, there will be 357 pensioners for every 1,000 people of working age.

Nearly £100 billion per year is currently spent by the Government on the state pension and pensioner benefits.

Projections suggest an additional 1% of GDP will need to be spent on the state pension by 2036/37. The report said if the same rise in spending was faced today, this would be equivalent to a rise in taxation of £725 per household per year.

Calls for triple-lock guarantee to be scrapped within next Parliament

The Government has committed to maintaining the triple lock throughout the current Parliament. However, the report said: "We recommend that the triple lock is withdrawn in the next Parliament."

Tom McPhail, head of retirement policy at Hargreaves Lansdown, said: "This report is going to be particularly unwelcome for anyone in their early 40s, as they're now likely to see their state pension age pushed back another year.

"For those in their 30s and younger, it reinforces the expectation of a state pension from age 70, which means an extra two years of work. This report also looks like the death knell for the state pension triple lock."

Additional reporting by the Press Association.