Chancellor George Osborne has announced a one year rise in the state pension age by 2020.
The increase will begin in 2018, with the £5bn annual saving used to provide a more generous state pension. The proposal will significantly increase the pace of state pension age equalisation for women, with women now set to have a retirement age of 65 by November 2018.
The SPA will then rise to 66 for both men and women from December 2018 until April 2020. Under the previous administration’s proposals, the SPA wouldn’t have reached 66 until 2026.
Standard Life senior pensions policy manager Andrew Tully adds: “Given increases to life expectancy, increasing the state pension age by one year is no great surprise. Raising the bar to age 66 will make the state pension more affordable for our children, but delaying retirement by a year is also sensible for private pension savers. A 45-year-old man saving £200 a month and delaying his retirement age by just one year could see his pension rise by almost 10 per cent.”
However, National Association of Pension Funds chief executive Joanne Segars warns women in their 50’s will be forced to review their retirement plans following the announcement.
The decision, confirmed in the CSR, represents a scaling back of the Conservatives pre-election proposal to accelerate the increase in the SPA to 66 by 2016. The Chancellor said increasing the retirement age was inevitable given the improvements in longevity highlighted in Lord Turner’s report, published in 2004.
Osborne also welcomed Lord John Hutton’s public sector pensions report, saying he wanted public pensions to present a “gold standard” of provision. He committed to retaining some form of defined benefit provision as part of the reforms.
In his report, Hutton said the final salary pensions enjoyed by public sector workers were “inherently unfair”. Osborne said the reforms to public sector pensions, which will be finalised in the budget next year, will save £1.8bn annually by 2014/15.
Additionally, Osborne told the Commons the MPs’ final salary scheme will likely end once Hutton’s final report has been submitted.