Jam tomorrow? Work, finances and retirement in an era of a rising State Pension age

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For sixty years, the UK State Pension age for women and men did not change. But since 2010, we have been in an era of a rising State Pension age – increasing to 67 for both women and men by the end of 2028.

The government recently announced the Third State Pension age review alongside a new Pensions Commission. In this context, this report from the Standard Life Centre for the Future of Retirement sets out:

• Our previous research about the State Pension
• What we know about the effects of a rising State Pension age
• Principles to guide future changes
• Ideas for how the government and employers can help to mitigate negative impacts of a higher State Pension age

Download the report

Key findings

The UK has a growing number of people in their 60s – those born during the 1960s baby boom. In 2010 there were 6.7 million people in their 60s, today there are 8 million. This is projected to peak at 8.7 million by 2031. It is this cohort who are most directly affected by changes to the State Pension age.

There are over 250,000 more people in pre-retirement poverty today than in 2010.

Raising the State Pension age has significant impacts:

• More people working for longer – but people are no more likely to re-enter employment if they are out of work
• Higher rates of poverty – especially for people out of work in their early 60s
• Difficult financial decisions – when and how to use private pension savings
• Fiscal savings for the Treasury – increasing the State Pension age from 66 to 67 is projected to reduce public spending by around £10 billion per year

Through robust surveys, and in-depth research with members of the public, we’ve explored what people really think about the State Pension:

• The State Pension really matters to people. Most people believe that the purpose of the State Pension is to serve as the foundation of people’s incomes in retirement, and to protect people from falling into poverty in old age. 84% of the public believe that it is an essential role of government to provide the State Pension.
• But knowledge and understanding are sometimes low. Only 18% of people correctly identified the current State Pension age of 66. Participants in our deliberative research often had low levels of knowledge and understanding about the State Pension.
• Many have concerns about the State Pension’s future. Members of the public expressed concern about the long-term existence of the State Pension and only a little over half (51%) of those aged 18-65 think that the State Pension will still be available for everyone when they retire.
• Most accept the need for State Pension age rises over the longer term – if done fairly. When shown information about longer life expectancy and an ageing population, participants agreed that increasing the State Pension age is reasonable. However, fairness was a key concern. They highlighted issues such as regional differences in life expectancy, unexpected events that affect individuals, and whether people are physically and mentally able to work until retirement.

What do we need to do?

As the State Pension age rises to 67, we think the government needs to put in place policies to ensure that as many people as possible have financial security throughout their 60s and beyond.

We need to:

• Give better opportunities for longer working lives. Through a coordinated strategy for over-50s workers, better flexible working options, support for carers and those with health conditions, and improved careers advice.
• Help people to save more for retirement. By focusing on retirement income adequacy through the new Pensions Commission, improving pension engagement, and employers offering options to adjust Automatic Enrolment contributions.
• Help people to make good decumulation decisions. With a higher State Pension age and more wealth in Defined Contribution (DC) pensions, decisions about how and when to access pension savings are critical. Initiatives such as Targeted Support could make a big difference.
• Adapt the social security system. Recognising that very few people out of work at 65 or 66 due to ill health or disability can return to employment.

The Treasury could allocate an amount equivalent to a proportion of the fiscal savings of raising the State Pension age to fund policies that reduce negative impacts. Where these policies lead to better outcomes, such as people remaining in good work for longer, they will also generate higher economic activity and tax revenue.

A rising State Pension age brings considerable savings to the public finances. By using the equivalent of a proportion of these savings to fund the changes needed in this new era of a higher State Pension age, we can boost economic activity, mitigate the negative effects, and build public confidence that the State Pension is a fair system for today and for tomorrow.

Download the report