Today’s workers must be prepared to retire later and later, while retirees may face a reduction in annual state pension increases. This will make financing a comfortable retirement that much harder for everyone, warns a leading pensions expert.
The state is pulling out of retirement planning, putting the burden on individuals to support themselves later in life, says Tom Selby, head of pensions policy at wealth adviser AJ Bell.
The state pension will increase from 2026 until age 67, which is now just four years away.
It will then climb to 68, possibly as early as 2037, but Selby says this is just the beginning. “The state retirement age will soon rise above 68 as average life expectancy continues to rise.”
Younger workers will have to wait even longer as retirement ages continue to rise, he warns. “They should prepare to start receiving their state pension at age 70 or possibly even later.”
Selby said today’s workers need to save heavily if they are to look forward to a decent retirement.
His advice is clear: “Save early and often and maximize your retirement savings.”
These include employer contributions to a company pension plan and tax relief for your own pension contributions.
“You can no longer rely on the state, so you have to build your own pot. It’s the best way to get the retirement you want,” Selby said.
He is also worried about the future of the state pension triple lock. “Recent economic ups and downs have exposed its fundamental flaws.”
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Introduced in 2010, the triple lock adds either inflation, earnings or 2.5 percent to the state pension, whichever is greater.
Chancellor Rishi Sunak scrapped the income element of the mechanism this year because it would have given retirees a pay rise of around 8.3 percent, based on wage figures released in September.
Ministers argued it would be wrong to use that number, which was “skewed and skewed” by the pandemic.
Now there are growing fears that Sunak could remove the inflation element next year as that too is “skewed and skewed”.
The Bank of England is forecasting inflation to top 7.25 per cent in April, and many believe it could climb even higher by September when the triple lockdown hike comes into effect. “If inflation picks up by then, the Treasury will again face huge government pension costs in 2023,” Selby said.
If inflation eases after September, as many analysts expect, ministers could use that as an excuse to use a lower figure.
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A second suspension of the triple lockdown would be extremely controversial, especially given the cost of living crisis, Selby said. “If you only use the triple lock when it suits you, the promise becomes utterly meaningless.”
The triple lock needs to be reconsidered, which could include using smoothed average earnings and inflation figures over a year instead of just a month. “This would give pensioners and the Treasury more security,” Selby said.
Changing or removing the triple lock would cause outrage on pensions, as it has lifted millions out of poverty over the past decade.
But as the nation ages and the annual state pension bill soars to over £100bn, its fate now hangs at stake.
The Conservative government has pledged to keep the triple lockdown, but only until 2024.
That’s only two years away.