Most of the people I meet who are within a few years of retirement are aware of the increases to the State Pension age. Especially those whose State Pension age will rise to 66. Others may not be so sure about this, and if they think they are, things might be about to change again.
Current legislation will see the State Pension age fully equalised for men and women at age 65 by November 2018. It will gradually increase for all to age 66 by October 2020 with further increases between 2026 and 2028 to take it to age 67 and between 2044 and 2046 to age 68.
Recent reports suggest the governments actuary thinks the State Pension age should rise to 70 and beyond. This is all based on life expectancy and what proportion of your adult life will be spent in retirement. The long and the short of it, is that the report suggests the State Pension age could rise to 69 between 2040 and 2042, to age 70 between 2054 and 2056 and age 71 between 2068 and 2070. This means those in their 20s could be waiting until 70 to receive their State Pensions and those under 20 could be waiting until 71. They also suggest the increase from age 67 to 68 could be brought forward to between 2037 and 2039.
My wife, Lorna, could well be affected if these changes find their way in to legislation. Currently, she is set to receive her pension at 67 but the latest report suggests this might be 68. If nothing else, I will, at the very least, find out whether she reads this article.
In the past people viewed the State Pension age as their target retirement age, but this has changed over the years. Faced with the prospect of a State Pension at 66 or 67 and beyond, the only alternative is to plan to have other income, or capital, available to support an earlier retirement age.
It’s increasingly common to hear people approaching retirement and stating they do not want to work beyond a certain age, 60 seems fairly common. This usually results in a greater need for income from other sources prior to the State Pension kicking in. When planning with clients we use cashflow modelling to see where the gaps are and how they can be filled. This is when clients can see the numbers laid out in front of them and they feel more engaged in the planning process.
Retirement and receiving the State Pension should really be viewed as two separate events. With the increases to State Pension ages, receiving your State Pension is now just one part of the retirement planning process. It’s a very useful part, but still just one part.
It’s an interesting fact that the first State Pension in the UK was paid to individuals aged 70 or over, and it certainly looks like we’re heading back to that territory. Having said that, back in 1909 it was means tested and only 1 in 4 individuals lived that long. The fact that life expectancy has improved so much has placed huge pressure on the State Pension system, so something had to change, and may continue to do so!