A review that could lead to an increase in the age at which people can retire and receive their state pension will be launched today amid pressure over the cost of the triple lock.
The State Pension Age review, which is required by law, will report back by March 2029 and could also herald changes to the current timetable, which will see the age rise to 68 between 2044 and 2046.
It is already scheduled to increase from 66 to 67 between 2026 and 2028.
But The i Paper understands the current Government is unlikely to make any decisions on further increasing the state pension age, or the timetable, before the next election, which is due in 2029. Ministers want to consider any changes in the round with a wider pensions review.
It means the cost of the state pension and the triple lock (the guarantee that the state pension rises in line with whichever is highest between inflation, wage increases or 2.5% each year) could become a major flashpoint when voters next go to the polls.
The review will be split into two parts – one on the factors ministers should consider that relate to the state pension age, and the other on the proportion of adult life spent in retirement.
It comes following warnings from the Budget watchdog that the UK’s finances are on an “unsustainable” track and the country “cannot afford” the spending promises which have been made to the public.
The Office for Budget Responsibility (OBR) warned earlier this month that on the current trajectory, the UK’s ageing population and its knock-on impacts for healthcare and pension spending will push debt from 94 per cent of GDP to 270 per cent by the early 2070s.
The watchdog also highlighted that the triple lock will be three times more expensive by the end of the decade than it was expected to be when it was introduced in 2011, costing £15.5bn by 2030.
The Government is committed to maintaining the triple lock until the next election but the dire state of the public finances is ramping up pressure on ministers to consider scrapping it in future.
The State Pension Age review will be launched alongside a major shake-up of pensions that could mean 18-21 year-old workers are auto-enrolled into saving for retirement.
An expansion of workplace schemes could help reduce pressure on the state pension.
Extending auto-enrolment to teenagers
The current system sees those aged 22 and older, and earning more than £10,000 a year, auto-enrolled into pension contributions at a minimum of eight per cent of their wages, with four per cent contributed by workers, three per cent from employers and one per cent in Government tax relief.
But The i Paper understands a new Pensions Commission, which paved the way for the introduction of auto-enrolment, will now examine whether this should be extended to younger workers down to the age of 18, amid fears that today’s workers face a greater risk of poverty in retirement than their parents.
The Commission will be launched today by Work and Pensions Secretary Liz Kendall alongside analysis warning that people due to retire in 2050 are on course for £800 – eight per cent – less private pension income than those retiring today.
The research from Kendall’s department also suggests four-in-ten people – nearly 15m – are undersaving for retirement, with nearly half (45 per cent) of working age adults saving nothing at all into a pension.
The self-employed, low paid and some ethnic minorities are particularly affected by low savings rates.
Around three million self-employed people are said to be saving nothing for their retirement, while only a quarter of people on low pay in the private sector and the same proportion from Pakistani or Bangladeshi backgrounds are saving.
Women face a significant gender pensions gap, with those approaching retirement in line to receive barely half the income that men can expect.
Kendall said the Commission, which last met in 2006, would “tackle the barriers that stop too many saving in the first place”.
The previous commission recommended automatically enrolling people in workplace pensions, which has seen the number of eligible employees saving for pensions rise from 55 per cent in 2012 to 88 per cent.
‘Tomorrow’s retirees risk being poorer than today’s’
Pensions minister Torsten Bell said: “If we carry on as we are, tomorrow’s retirees risk being poorer than today’s. So we are reviving the Pensions Commission to finish the job and give today’s workers secure retirements to look forward to.”
The commission will be led by Baroness Jeannie Drake, a member of the previous commission, and will report in 2027 with proposals that stretch beyond the next election.
Kendall’s decision to revive the Pensions Commission has been broadly welcomed by the pensions industry.
Kate Smith, head of pensions at Aegon, urged the commission to make “bold, brave and possibly unpalatable recommendations”, including “significant increases” to auto-enrolment contributions after 2029.
Meanwhile Age UK’s Caroline Abrahams said the commission needed to address the state pension, which provides the bulk of retirement income for most pensioners.
She said: “If we’re to avoid future generations of pensioners experiencing financial hardship, we need reforms that enable more people to build a decent standard of living, and we need them sooner rather than later to maximise the numbers who can be helped.”
Ministers hope the Pensions Commission will build a consensus around changes, as its predecessor did, working with businesses and trade unions.