Treasury confirms accelerated state pension age rise to 68 by 2039

The Treasury has confirmed that the Government’s current policy position is to increase the state pension age to 68 by 2039 rather than the legislated increase set in the Pensions Act 2007.

This is consistent with the recommendation of the first state pension age review in 2017 that the legislated rise to 68 between 2044 and 2046 should be brought forward to the late 2030s and that 32% of adult life should be spent in retirement.

According to the latest Office for Budget Responsibility (OBR) fiscal risks and sustainability report, long-term projections from its baseline scenario suggest a 15% increase in labour market participation among 65-69-year-olds by the mid-2040s.

The OBR also projects participation among those aged 70 or older to rise from 7% to nearly 10% across the same period, primarily driven by healthier life expectancies.

As life expectancy continues to rise, state pension spending is also set to increase, reaching around 0.9% of GDP above the baseline scenario by 2075–76.

This is slightly offset towards the end of the projection period by an earlier rise in the state pension age to 69 starting in 2067-68 – six years earlier than in the baseline.

The OBR notes that public finances will likely move onto an unsustainable path and it is almost certain that future governments will at some point have to take action.

Quilter retirement specialist Adam Cole said this will be “unwelcome news” but a “stark reminder of a reality that policymakers have been grappling with for years”.

“The state pension remains the bedrock of retirement income for millions of people, but there is a growing mismatch between the number of people drawing it and the number of working-age taxpayers funding it.

“Indeed, if governments wish to maintain the generosity of the state pension, raising the state pension age becomes one of the few levers available to control costs.”

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Lily Megson-Harvey, policy director at My Pension Expert, stressed that “for millions of people currently in their 50s, this latest speculation creates real uncertainty over when they will be able to claim their state pension.

“Retirement planning takes decades, and people need confidence that they can make informed decisions about when to stop working, how much they need to save and what their income will look like in later life.”

Megson-Harvey continued: “Anyone who could be affected should consider reviewing their retirement plans and seeking financial advice to understand what any future changes could mean for their long-term finances.”

Cole added that people shouldn’t solely rely on government provision and should view this as a reminder of the importance of building their own retirement savings.

Broadstone head of policy David Brooks highlighted that as the value of the state pension continues to rise, it is inevitable that more people will pay income tax.

He said: “Taxation is increasingly becoming the most cost-effective way for government to distinguish between those with more and less retirement income while preserving the universal nature of the state pension.

“Pensioners are not a uniform group and, while some rely heavily on the state pension, many benefit from occupational and private pension savings.

“The policy challenge shouldn’t be preventing pensioners from ever paying tax, but reducing poverty and ensuring support is targeted at those who need it most.”