State Pension Age Rising to 70
22nd February 2018
The Government Actuary says the UK State Pension is not sustainable, even though it is the lowest in the developed world, according to latest OECD figures.
UK bottom of the global pensions league table: No other country has a less generous State Pension than ours for average earners. Even Chile, Poland and Mexico pay better State Pensions than the UK for middle income groups. With our aging population, and a decline in traditional final salary-type pension schemes, the UK faces rising risks of old-age poverty.
Net pension replacement rates for average earners (state pension as a % of earnings):
Country % of average earnings
Netherlands 100.6Portugal 94.9Italy 93.2Austria 91.8Spain 81.8Denmark 80.2France 74.5Belgium 66.1Finland 65.0Czech Republic 60.0Sweden 54.9Canada 53.4Germany 50.5USA 49.1Norway 48.8Switzerland 44.9New Zealand 43.2Australia 42.6Ireland 42.3Chile 40.1Japan 40.0Poland 38.6Mexico 29.6UK 29.0
OECD average 62.9
Source: OECD ‘Pensions at a Glance’ Table 4.8 December 2017
State Pension has already been reduced, but will have to be cut further: In April 2016, major reforms to the UK State Pension were supposed to have made the system affordable for the future, reducing its generosity. Beyond the 2030s, the new State Pension will be lower than the old system for most people and the lowest paid, predominantly women, will generally lose significantly from the new system. Despite this, the Government has been advised, by its own actuaries, that the costs of paying State Pensions will soar so much over the next 20 years and beyond, that further cuts could be required.
Even though UK State Pension is lowest in the world, it needs to be cut to avoid massive tax rises – perhaps dropping triple lock: The Government Actuary believes that just funding the UK’s exceptionally low State Pension will require reducing payments in future or dramatic tax rises. The options would include dropping the triple lock (which increases the new State Pension in line with the highest of earnings inflation, price inflation or 2.5%) and increasing State Pensions in line with average earnings instead, or possibly doubling National Insurance rates for average workers. Policymakers face difficult decisions and are also likely to need to increase State Pension age further.
Everyone aged 30 or below will get no State Pension till their 70s: State Pension age has been rising since 2010 and will reach 66 by 2020, increasing further to 67 and then to 68 under existing legislation. However, the Government Actuary assumes state pension age will be 70 in the 2050s and 71 in the 2060s. This means anyone aged 30 or below, will not get their state pension until they are age 70. And those aged 20 or younger will have to wait until they are 71.
More to do to address UK pensions crisis – including making private pensions more attractive: We are one of the world’s leading economies, but our support for the oldest in society is not fit for purpose. Even though most people will receive the lowest State Pension in the developed world, the costs of providing for our aging population have not yet been brought under control. To avoid burdening younger generations with significant tax rises, it is vital that more is done to boost private pension saving. Auto-enrolment is a good start but the pensions industry needs to attract more customers to pay more into their pensions.