Middle-aged workers set to lose £17,300 each with state pension age rise | Personal Finance | Finance
Middle aged workers face losing as much as £17,300 each. (Image: Getty)
Middle-aged workers could be set to lose more than £17,000 if the next state pension age rise is brought forward by seven years.
This week a new report from the Office for Budget Responsibility (OBR) has set out that the state pension age will need to rise to 68 in 2037, not 2044, seven years earlier than currently planned.
It means that millions of people will face an extra year in work under the plans. In its report, the OBR says the ‘current policy’ is to move the rise forward by seven years, and that the Treasury has confirmed the decision, despite the fact that this policy has not been announced by Rachel Reeves or put into legislation.
Experts at finance firm Fidelity told the Express that the change, should it be put in place, could mean that someone aged in their 50s today would lose as much as £17,730.
Triple lock increase to push pensions to over £17,000
That’s because triple lock increases will push the value of the state pension higher between now and 2038, but those affected by the earlier state pension age rise will miss out on a year’s worth of payments.
According to the Pension Act 2007, the current policy is that the pension age will rise to 68 from 2044 to 2046, in a similar transitional period to the current state pension age rise from 66 to 67, which is now under way and due to complete by April 2028. If the planned increase to 68 is brought forward, it will mean roughly five million people aged 49 to 55 will have to work for an extra year before being eligible for their state pension.
Jemma Slingo, a pensions and investment specialist at Fidelity International, said the change has ‘big implications’ for those currently aged in their 50s, with ‘significant financial consequences’.
She told the Express: “The state pension age is rising – and it could rise faster than people expected.
“Currently, the state pension age will begin to rise from 67 to 68 in 2044. However, a report from the Office for Budget Responsibility suggests the change could take place sooner: between 2037 and 2039.
“This has big implications for a cohort of people currently in their early to mid-fifties, who may have to wait longer to receive government support. Imagine you recently turned 53, for example. Under the current timetable, you would receive your state pension at age 67, in 2040. If the rules change, however, you could be waiting until you’re 68.
“This could have significant financial consequences. The full new state pension currently pays £12,548 a year. However, it is triple lock protected, meaning it increases every year by the highest of either inflation, wages or 2.5%. In 2037, therefore, it will be worth significantly more: at least £16,464, if the triple lock stays in place. By 2040, it could be worth £17,730.”
She explained that not all affected Brits would lose a full year, though, as some would be part of the ‘transition’ period where the rise is introduced gradually. This would be the same method as the current state pension age rise from 66 to 67 which is currently underway, which delays state pension eligibility by up to 11 months across a two-year period while the rise is implemented between 2026 and 2028.
Middle-aged workers told to plan now for pension age rise
Ms Slingo urged affected workers to start planning now.
She added: “If you’re keen to retire before you hit state pension age, you need to do some careful planning. A sensible first step is to prioritise your private pension.
“Starting young gives your investments more time to benefit from compound growth, but pensions can also be incredibly tax-efficient later in life too, thanks to generous tax relief. Whether you have a workplace pension or a personal pension – known as a SIPP – paying in more can pay off in the long run.
“If you’re in a workplace pension, check whether you are adding enough every month to receive the maximum contribution from your employer. Some employers will match your contributions up to a certain level, for example. Failing to do this could mean missing out on what is effectively free money.
“When you eventually qualify for the state pension, you’ll want to get as much money as possible. Often, however, people receive less than they expected. This can be down to a patchy National Insurance (NI) record.
“You can check your NI record on the government website and, if there are gaps, you can top up your state pension by making voluntary contributions for the past six years. You can do this before or after you reach state pension age. The point of this is to pay a small amount now, so you get more income in the long run. This often makes good financial sense, but you have to consider how long it will take you to break even and whether you can afford the upfront cost.”
