Scrap the state pension triple lock or retire at 74?

State pension report reveals government faces stark future choice.

The Independent Review of the State Pension Age, published on 30 March 2023, reveals a stark choice for future governments who will need to choose between raising the state pension age as high as 74 for current 30-year-olds, reducing the triple lock, or seeing Britain’s state pension payments rise to unsustainable levels.

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Alice Guy, Head of Pensions and Savings at interactive investor, says: “The current state pension timetable means someone currently aged 62 or younger will see their state pension age rise to 67 and someone currently aged 45 or younger won’t get their state pension until they reach 68-years-old.

“But proposals in the Independent Review of the State Pension age to cap state pension spending at 6% of GDP could lead to an acceleration of the state pension age timetable so that current 48-year-olds would have to wait until 68-years-old before receiving their state pension and 30-year-olds might not get their state pension until they reach 74-years old.”

The report recommends that, “the government sets a limit on state-pension-related expenditure of up to 6% of GDP (this could be met through changes to [State Pension age, or SPa], eligibility rules or uprating)”. The report also notes that “while we make no firm recommendation, current projections of GDP and state-pension-related benefit expenditure suggest that SPa should rise to age 69 over the period 2046-48.

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“This possible rise should be reassessed in the light of new fiscal and life expectancy projections. We note that the government has other tools to control state-pension-related expenditure as a share of GDP beyond raising the SPa, including the generosity of pension uprating.” (p121)

The report also includes a possible timetable for state pension age changes if the proposals to cap state pension spending at 6% of GDP are adopted with no change to the triple lock, p117.

Sources: confirmed changes are those already in legislation, proposed changes/recommendation are those proposed or recommended in the Independent Review of the State Pension Age report, possible changes are based on linking state pension to 6% GDP (see p117 of the report), state pension lost based on ii calculations.

Assumptions: lost state pension based on state pension uprated for OBR inflation forecast in 23/24 and 2% inflation after that date.

Alice Guy says: “At the heart of Baroness Neville-Rolfe’s independent report into the state pension age lies a knotty conundrum. With an ageing population there will be fewer workers to pay for each pensioner in the future and something has to give to keep the state pension affordable for tomorrow’s taxpayers.

“Baroness Neville-Rolfe’s proposals include capping the state pension at 6% of GDP in the future. To stick to this strict budget, the government would face an unenviable choice as the population ages, choosing between raising the state pension age as high as 74 for current 30-year-olds or cutting back on the triple lock commitment.

“If the proposals to cap state pension spending are adopted, the report reveals that someone currently aged 30 or younger could be waiting until aged 74 to receive their state pension. This would mean they miss out on eight years of state pension compared to current pensioners, worth £209,432 by 2067.

“Although these proposals seem shocking, these regular state pension age reviews are needed to make sure the government is realistic about their future commitments, so the state pension remains affordable. The proposal to cap state pension spending at 6% is not set in stone and future state pension choices will depend on life expectancies, economic growth and inflation in the years to come.

“It’s important to remember that state pension age changes also impact on the private pension age. From 2028, the government plans to link the minimum private pension to the state pension age, setting it at 10 years before the state pension age. These proposals could mean that someone currently aged 30 has to wait until they reach 64 before being able to access their private pension pot, 10 years before their state pension age. Younger workers who want to retire early may need to supplement their private pension with other savings vehicles such as ISAs which have no age limit.”