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Raise retirement age to 70 or Britain will go bust, warns think tank

london commuters
london commuters

The state pension age will have to rise to 70 by 2040 to balance the public finances, a think tank has warned.

An ageing population means a higher retirement age will be needed to maintain the current ratio of workers to retirees, a study by the International Longevity Centre said.

The state pension age is already due to increase from 66 to 67 in 2028 and to 68 by the mid-2040s. However, the study’s findings suggest that workers currently in their 40s may have to wait until they are at least 70 to retire.

The ratio of working-age people (aged 15-64) to those aged 65 and over was 5:1 in Britain in 2000, according to the ILC. The ratio is expected to fall to 2:1 by 2050, which would put huge pressure on the public finances unless the retirement age were raised to 70 or 71.

If the working adult population is instead defined as those aged 20-64, to account for time spent in full-time education, the state pension age would have to reach 70 or higher as soon as 2040, the study said.

It comes amid renewed scrutiny of the pensions “triple lock”. The policy stipulates that the state pension be increased by the highest of 2.5pc, wage growth or inflation. The next increase in April of 8.5pc is in line with wage growth.

The Government has committed to keeping the triple lock for 2024-25, which means some pensioners will see their state pension surpass £11,000 for the first time. However, Mel Stride, the Work & Pensions Secretary, has said the triple lock is “not sustainable” in the long term.

Pensioner benefits will cost the Government £136bn in 2023-24, of which £124bn will be spent on state pensions, according to the Office for Budget Responsibility.

A higher state pension age is one of the most effective ways to control the cost of the state pension, but critics have argued that it could deepen social inequality.

Baroness Altmann, a former pensions minister, said further rises in the state pension age were “unconscionable” and would force many people in their 60s into poverty.

She added: “It’s a state pension for the healthy and wealthy, ignoring the fact that it’s basic social welfare. It’s not the way to run a state pension policy. The [age] cut-off is far too inflexible.”

Ministers abandoned plans last year to accelerate rises in the state pension age after official data revealed a drop in life expectancy.

But an ageing population in increasingly poor health is expected to add even more pressure to the national finances, according to the ILC.

More than two million people are economically inactive – neither in work nor looking for work – because of ill health, an increase of 350,000 compared with pre-pandemic levels. By the age of 70, only 50pc of adults in England and Wales are disability-free and able to work, official figures show.

The exit of people from the workforce before retirement age reduces the tax base that provides the money to pay for pensions, the think tank said.

It also warned that Britain’s 14 million members of “Generation X” saved just £200 a month into their pension pot on average and that a third of this group were at high risk of retiring on insufficient income.

It also found that younger people did not have as many financial assets as their parents and grandparents. In 2010 those under 40 held £7.53 of every £100 of wealth but over the past decade the figure has fallen significantly to only £3.98.

Kate Smith, head of pensions at Aegon, the insurer, said the ILC’s report would be “concerning for millions of people” and urged all political parties to detail their pension plans before the general election.

She added: “People need to know where they stand and what this means for their later life, giving them plenty of time to adjust their working and savings plans. Raising the state pension age feels like a very blunt instrument – and would probably penalise those most in need.”

Sir Steve Webb, a former pensions minister and now of consultants Lane Clark & Peacock, said: “There are lots of ways to address the problem that don’t involve increasing the state pension age.

“What matters is how many workers are actually productive. If we manage to get millions of long-term sick back to work, this would reduce the pressure on the pension age.”

A government spokesman said: “The over-50s are an asset to our economy, which is why we committed £70m in employment and skills support for them at last year’s spring Budget. This investment is already paying off with an extra 54,000 over-50s added to company payrolls in the last year.

“We will also continue to ensure the state pension remains a sustainable and fair foundation of income in retirement for future generations.”

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