Autumn Budget 2024: Is The UK State Pension Age Going To Increase?

The UK state pension age has been a subject of considerable debate and speculation for years. As life expectancy rises and the financial pressures on the state pension system grow, the possibility of further increases to the pension age is a realistic concern.

Speculation has been circulating since September 2024 about a possible increase in the state pension age in the upcoming UK Autumn Budget 2024. Analysts have highlighted the government's challenge in addressing a £22 billion fiscal gap, leading to considerations of pension-related adjustments to address the deficit. Despite the absence of an official statement, there are apprehensions that the state pension age could be raised to address the projected expenses linked to an increasingly elderly population.

Is the UK state pension age going to increase?

Currently, the retirement age is 66 and is planned to rise to 67 by 2028. Talks about elevating it to 68 have been ongoing. With economic challenges and longer life expectancy in mind, it is anticipated by many experts that there might be a hastening in the schedule to achieve a higher retirement age. Although Chancellor Rachel Reeves has not issued an official declaration, experts in the field indicate that adjustments to pensions could be a potential strategy to stabilize the budget.

Opinions among the public regarding the possible rise in the retirement age have been varied. Some express worries about the possibility of prolonging working years, particularly for individuals in physically strenuous occupations or those with shorter lifespans. Conversely, economists argue that changes are essential to guarantee the longevity of the pension scheme, particularly with the increasing number of individuals living longer and receiving pension benefits for longer durations.

The Autumn Budget, slated for late October 2024, is expected to bring clarity. Until then, the possibility of a pension age increase remains a contentious issue among policymakers, industry analysts, and the public.

Current State of the UK Pension Age

At present, the state pension age in the UK is 66 for both men and women. Plans are already in place to raise it to 67 by 2028 and to 68 between 2037 and 2039. These changes stem from the government’s attempt to make the pension system more sustainable in the face of an ageing population and longer life expectancy.

However, recent discussions suggest that the timeline for raising the pension age could accelerate further, with proposals to bring forward the increase to 68 as early as 2035.

Why the Increase May Happen Sooner

1. Ageing Population and Life Expectancy Trends: One of the driving factors behind the potential increase in the state pension age is the ageing population. According to the Office for National Statistics (ONS), life expectancy in the UK has been rising steadily over the past few decades. While it has slowed in recent years, people are still living longer on average, which places increasing pressure on pension funds.

   In 2020, there were approximately 12 million people aged 65 and over in the UK, a number that is expected to rise to over 17 million by 2040. With more people receiving pensions for longer periods, the government faces a challenge in ensuring that the pension system remains financially viable without increasing contributions or cutting benefits.

   
   

2. Public Finances and Sustainability: The state pension is one of the largest items of government expenditure. According to the Institute for Fiscal Studies (IFS), spending on pensions and related benefits accounted for around 5% of the UK’s GDP in 2023. With increasing longevity, this figure is likely to grow unless significant reforms are made. One of the most straightforward ways to address this challenge is to raise the state pension age, thereby reducing the number of years people spend in retirement receiving benefits.

   
   

   The 2017 Cridland Review recommended that the state pension age be linked to life expectancy, making further increases more predictable and sustainable. It also highlighted that increasing the state pension age sooner rather than later would help to protect younger generations from bearing an undue financial burden.

   
   

3. Economic Pressures Post-COVID-19 and Inflation: The economic impact of the COVID-19 pandemic has added further pressure to the government’s finances. The national debt has increased significantly, and there is a need to find ways to cut long-term spending. Additionally, with inflation rising in 2023 and 2024, the cost of living has surged, increasing the amount the government spends on pension benefits. All these factors contribute to an environment where increasing the state pension age becomes an attractive option for policymakers to ease financial pressures.

   
   

4. International Comparisons: Many other countries have already increased their state pension age in response to demographic shifts. For example, in Germany, the retirement age will gradually rise to 67 by 2029, while the Netherlands is considering raising the state pension age to 68 in line with life expectancy. The UK’s current pace of change aligns with these global trends, but as life expectancy increases, it may feel pressure to match or exceed other nations’ pension ages to maintain competitiveness and fiscal sustainability.

   
   

Why the Increase Might Face Opposition

1. Inequality in Life Expectancy: One of the main arguments against increasing the state pension age further is the inequality in life expectancy across different regions and socioeconomic groups in the UK. People living in wealthier areas tend to live longer and, therefore, would benefit more from an increase in the pension age, as they are more likely to reach retirement and spend more years drawing their pension.

   For example, according to Public Health England, life expectancy in the most deprived areas is significantly lower than in the wealthiest. This disparity means that a blanket increase in the state pension age could disproportionately disadvantage those in lower-income areas, who may not live long enough to fully benefit from their pension.

   
   

2. Health and Employment Challenges: Another argument against raising the pension age is the challenge many people face in continuing to work as they age. While some jobs are suitable for older workers, many are physically demanding and become more difficult to perform as workers reach their 60s. An increase in the state pension age could force some people into unemployment or early retirement, leaving them financially vulnerable in their later years.

   Moreover, research by Age UK shows that many older workers are already struggling to find employment, with age discrimination being a significant issue in the job market. Raising the pension age without addressing these employment challenges could lead to increased poverty among older people.

   
   

Likelihood of a State Pension Age Increase

Given the demographic, economic, and political factors at play, the likelihood of a state pension age increase in the UK is high. The government has already indicated its intention to raise the age to 68, and it may bring forward this increase depending on future financial pressures and demographic changes. However, the exact timing of the increase is uncertain and will depend on a variety of factors, including life expectancy trends, public opposition, and political will.

While there are valid arguments against increasing the state pension age, particularly in terms of inequality and employment challenges, the financial realities facing the UK government make it likely that further increases will be necessary to ensure the long-term sustainability of the pension system.

Conclusion

The UK is likely to see an increase in the state pension age in the coming years as the government seeks to balance rising life expectancy with the need to maintain a sustainable pension system. While there are valid concerns about the impact of such changes, particularly on lower-income individuals and those in physically demanding jobs, the financial pressures on the state pension system make an increase highly probable.

For those approaching retirement, understanding the changes and planning accordingly will be crucial in ensuring financial security in later life. The debate over the state pension age is likely to continue, but the direction of travel seems clear: working longer before receiving a pension is becoming the new reality for future generations.