‘Can you help me understand the state pension age changes?’
I’m a bit confused about the state pension. I’ve seen some stories saying it is now 65 and three months – does that mean it won’t be increasing to 66?
Tom Selby, AJ Bell senior analyst says:
Unfortunately no, but it’s not surprising the approach the Government has taken to raising the state pension age has caused a little confusion.
The increase to age 66 is being phased in until October 2020, meaning people reaching their 65th birthday before that date will receive their state pension at different ages. The timetable in this article shows you exactly how it works.
Those first affected were born between 6 December 1953 and 5 January 1954. This group of people had to wait up to three months beyond their 65th birthday to receive the state pension on 6 March 2019.
The next cohort with birthdays between 6 January 1954 and 5 February 1954 will then have a state pension age between 65 and three months and 65 and four months. This pattern continues until October 2020, when the shift to a state pension age of 66 for all will be complete.
Beyond this point, there are plans in place to increase the state pension age to 67 by 2028 and 68 by 2039. It is possible this will be reviewed in light of a growing body of evidence suggesting life expectancy improvements have slowed since 2011, although it’s worth remembering these reforms have been a long time coming.
Male life expectancy at birth has risen from 71 in 1980 to 79 today, while male life expectancy at 65 has increased from 13 years in 1980 to 18.5 years today. This shift has pushed up the cost of the state pension to the Exchequer, expected to reach an eye-watering £96bn in 2018/19. You should therefore factor a rising state pension age into your retirement planning.
Increases to the state pension age will have a significant impact on those affected. The amount of state pension to which you are entitled will depend on whether you built up rights under the old system or the new system introduced from April 2016.
If we use the modern flat-rate state pension as an example, those who have to wait an extra three months to receive it will miss out on over £2,000 in income. A full year delay will cost £8,546.20 in today’s prices, while two extra years will leave a hole of £17,000.
If you still want to stop working at 65, you’ll need to either save a bit more in your private pension or spend less in retirement to fill the gap.
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