Millions to lose up to £18,000 in savings from pension reforms

Telegraph

a day ago

Millions of workers in their 50s face losing up to £18,000 if the Government accelerates a rise in the state pension age, a leading wealth manager has warned.
Rathbones, which manages the savings of older people, said introducing a state retirement age of 68 earlier than planned threatened to hit people aged 51 the hardest, while people aged 52 and 53 would also lose out.
The Government is exploring whether to raise the state pension age to 68 more quickly. It is currently set to be phased in from 2044, but Liz Kendall, the Work and Pensions Secretary, is considering bringing this forward five years to 2039 as part of the Government's pensions review.
According to Rathbones, those aged 51 would lose an entire year's worth of state pension payments if the timetable is accelerated. That would be worth £17,774, assuming today's state pension of £12,000 increases by the so-called triple lock each year.
Under the triple lock, the state pension rises by the highest of inflation, average wages or 2.5pc per year.
Meanwhile, people aged 52 would miss out on £17,340 and those aged 53 would lose £16,918.
Each of those age cohorts – 51, 52 and 53-year-olds – comprise some 800,000 people, meaning around 2.4 million risk missing out on significant five-figure sums.
Rebecca Williams, from Rathbones, said Britain's ageing population would put a growing strain on the public finances.
She said: 'With longevity increasing and population pressures mounting, future generations appear set to face a less generous state pension regime than that enjoyed by many of today's retirees.
'The situation appears particularly precarious for those in their early 50s who face the real prospect of missing out.'
The state pension age is currently 66 and will rise to 67 by 2028.
Spending increasing
Raising the state pension age is likely to prove politically challenging. Previous pension reviews recommended increasing the pension age in the late 2030s, but the move was not put into legislation.
However, financial pressure is growing, and Ms Kendall acknowledged when launching her review that she was 'under no illusions' about the scale of the challenge.
Estimates from the Office for Budget Responsibility (OBR) show that state pension payments will amount to 5.1pc of GDP this year, up from 3.6pc two decades ago. That bill will keep on mounting, rising to almost 8pc by the 2070s.
Overall spending on pensioners, including the state pension, housing benefit and winter fuel payments but not counting healthcare costs, came to £150.7bn last year and will rise to £181.8bn by the end of the decade, according to the OBR.
The Government has sought to limit the increase by restricting the share of pensioners who receive winter fuel payments. However, it was forced into a partial about-turn after a backlash from voters and Labour's own backbench MPs, showing the difficulties of reining in benefits spending.
It means there is increasing pressure from the public finances to find ways to save money for the long term, potentially including further increases in the pension age.
The Institute for Fiscal Studies estimates that raising the pension age by one year saves the Government around £6bn per year.
Nigel Farage, leader of Reform UK, last week said the state of the public purse means the pension age should be increased more rapidly, in line with life expectancy.
'I don't think we can really afford to [wait to the 2040s], to be frank,' Mr Farage said. 'If there is a sudden economic miracle, then it might change that. But it does not look to be happening any time soon.'
The International Monetary Fund last week said that if the Government stuck to its promise not to raise taxes on 'working people', then it would have to consider reining in spending, 'to align better the scope of public services with available resources'.
'In particular, the triple lock could be replaced with a policy of indexing the state pension to the cost of living,' the global economic watchdog said.