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Osborne welfare cap decision signals rapid state pension age rise

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Experts say the Government could accelerate planned increases in the state pension age after Chancellor George Osborne confirmed state pensions will not be included in the welfare spending cap.

In his comprehensive spending review speech last week, Osborne set out plans to introduce a cap on overall welfare spending from 2015. 

The cap will be set each year at the Budget and the Office for Budget Responsibility will be able to issue public warnings to the Government if it is on course to breach the cap.

A small number of cyclical benefits that rise and fall with unemployment will be excluded alongside the state pension but housing benefit, disability benefit, tax credits and pensioner benefits will all be included.

Osborne said: “I have had representations we should include the basic state pension in the welfare cap. It would mean keeping a rise in working age benefits by cutting the pensions for older people.

“That penalises those who have worked hard all their lives. Cutting pensions to protect working age benefits is a choice this Government will not make. It is unfair.”

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The Government already has plans in place to cut state pension spending through the introduction of the single tier and by linking future rises in the state pension age to life expectancy.

Labour has also committed to capping welfare spending although it is not yet clear whether their cap will include state pensions.

Hargreaves Lansdown head of pensions research Tom McPhail says: “The only room for manoeuvre the Government has in terms of reducing state pension spending is the state pension age.

“It is only a matter of time before we get an announcement from the Government about having to accelerate the rise in the state pension age.

“It is due to rise to 66 by 2020 and I doubt they will tinker with that, but the next rise to 67 in 2028 could get moved forwards.”

Barnett Waddingham consultant Malcolm McLean says: “You cannot help feeling there is a lot more to come on pensions in the coming months and years to contain spending, with further state pension age rises likely to be a tempting target.”

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