State pension changes: are you prepared?

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The focus for this week’s episode is pensions ahead of changes to the state pension age, which is rising from 66 to 67. In a worst-case scenario, those turning 66 around this time next year face a delay of up to a year before they can claim the state pension.

To examine the details and discuss how the state pension age will increase in future, Kyle is joined by Craig Rickman, personal finance editor at interactive investor. Other topics include the sustainablity of the state pension triple lock, and whether the state pension will exist in the future or potentially be means tested. 

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Kyle Caldwell, funds and investment education editor at interactive investor: Hello, and welcome to On The Money, a weekly look at how to make the most out of your savings and investments.

Today, we’re going to be covering the state pension. The state pension age will shortly be increasing from 66 to 67 and we’ll be covering that. We’re also going to be covering the sustainability of the pension triple lock, and looking at how the state pension age will rise further in the future, and what people can do about that in terms of preparing.

Joining me to discuss this topic is Craig Rickman, personal finance editor at interactive investor.

So, Craig, the state pension age is shortly going to increase from 66 to 67. Could you run through the details?

Craig Rickman, personal finance editor at interactive investor:Absolutely. So, this increase to age 67, which is the age you can claim your state pension, is being phased in over time between April this year and April 2028.

So, the actual dates that you can claim your state pension, should you turn age 66 within the next 12 months, it won’t necessarily be on your 66th birthday or your 67th birthday, it might be somewhere in between depending on when you were born.

To try and help explain this with a bit more clarity, there should be a table popping up on the screen. For the benefit of those who aren’t seeing this on video, I’ll quickly run through some of the examples to try and make sense of this.

So, if you were born between the 6 April 1960 and the 5 May 1960, the date that you will reach state pension age will be 66 years and one month. So, effectively, you have to wait a month after your 66th birthday if you turn 66 in between 6 April and 5 May this year. And with each monthly period that passes, the extra months that you have to wait increases.

So, here’s another example. If you were born between 6 September 1960 and the 5 October 1960, you have to wait an extra six months after your 66th birthday, and that goes through to those who were born between the 6 February 1961 and the 5 March 1961, who have to wait 11 months after their 66th birthday.

So, hopefully, that makes sense. The important thing for those who will be turning 66 during that period is you might have to wait a bit longer to receive your state pension after your 66th birthday. In some cases, that could be up to a year. And if you do have to wait up to a year, given that the full state pension provides, certainly from April, more than £1,000 a month, that’s quite a big hole to plug.

So, you can head to the government website to find out the exact date that you can claim your state pension. If you haven’t done so already and this affects you, that might be a sensible thing to do.

Kyle Caldwell: So, it’s a lottery essentially, depending on where your birthday falls within the tax year. In terms of plugging any potential shortfall, then you’d need to look at what assets you have, consider your pension pot, whether you’ve got an ISA, and consider utilising one of those, or maybe a mixture of the two, in order to plug any shortfall.

Craig Rickman: That’s right, yeah. That’s if you’ve already made plans to retire on your 66th birthday. The other option is to delay your retirement. For those who plan to retire at 66, they might need a Plan B.

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Kyle Caldwell: So, the state pension age, as you’ve just explained, it’s going up from 66 to 67. The next increase in the state pension age is expected to happen in 2044 to 2046. At that point, the state pension age is expected to rise to 68. However, it could potentially rise sooner than that. Could you explain why?

Craig Rickman: Sure. So, under the Pensions Act 2014, the state pension age must be reviewed every six years. One review took place in 2017. Another took place in in 2023.

Both of those reviews recommended that the increase to age 68, or the timetable, was brought forward. The first one recommended that it took place between 2037 and 2039, and the other one, 2041 and 2043.

So, they both recommended that timetable was brought forward, essentially to save costs with concerns about the future sustainability of the state pension. So, that review must take place every six years, but the most recent review was kickstarted last year. So, it was due to take place by 2029, but it started four years before that.

We can read into that to suggest that the government sees reviewing the state pension age as a pressing issue. And, yeah, the intended increase to 68 and the timetable for that will undoubtedly be under review, and there’s every possibility that that could be brought forward.

Kyle Caldwell: Given that they’re reviewing the state pension age earlier than they need to, that does imply that the direction of travel is that the increase in the state pension age to 68 will happen sooner than is currently scheduled, which as mentioned is 2044 to 2046.

Another change that’s taking place in April 2028 is that the age in which you can access your personal pension is going to go up from 55 to 57. In terms of the state pension age going up, you mentioned that this is down to concerns over future sustainability. Is this mainly down to the fact that, on the whole, we’re living longer and healthier lives?

Craig Rickman: Yes. That’s certainly a big factor. The way that the state pension is funded and the way that it works is that the National Insurance contributions paid by today’s workers pay today’s pensioners.

So, that’s something called the National Insurance Fund. Whether that truly exists is a matter of some debate, particularly as the National Insurance contributions for employees were reduced recently, or a few years ago. So, that’s a matter of some debate.

But what we’ve seen over the years is that with people living longer, there are more people in retirement, or a bigger percentage of people retiring than they were before, and a smaller percentage working.

So effectively, there are fewer people paying the National Insurance contributions and more of that being used to fund pensioners. So, that’s the main consideration.

Life expectancy is a big factor when the state pension age is reviewed. There are other factors as well, but that’s a big one.

Kyle Caldwell: Let’s now move on to the pensions triple lock. This policy has been in place for around 15 years. It was introduced by the coalition government of the Conservative Party and the Liberal Democrats.

Under this policy, the state pension increases in line with one of three factors. It’s either a minimum of 2.5%, earnings growth, or the rate of inflation.

Craig, why are there lots of concerns that the state pension triple lock won’t indefinitely stay in place? Why is it not being viewed as sustainable in the future?

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Craig Rickman: The concerns centre on that it’s too expensive to run, that’s the main concern. What we do know is that the triple lock will stay for the current parliament. The government is committed to it.

But the concerns about the affordability of the triple lock have been around for some time. In fact, if we go back to the 2017 review of the state pension age by John Cridland, he recommended that the triple lock was withdrawn in the following parliament. We know that didn’t happen.

But those concerns about the expense of the triple lock remain today and are growing, if anything. The tricky thing for the government, and this is part of the state pension age review, although the triple lock isn’t due to form part of that, but the tricky thing within it is to look at the future sustainability of the state pension, whether that’s accelerating the ages or increasing the age that people can claim it, or changing the way that the income is uprated every year, and to make sure that they’re also supporting those on lower incomes.

So, you want to build a system, a state pension that’s sustainable, but you also need to appreciate the fact that a lot of people rely heavily on the state pension. In fact, interactive investor research as part of our Great British Retirement Survey found that 62% of retirees see the state pension as their main source of income. So, if the triple lock is removed or the ages are changed, then that’s going to have a big impact on a lot of people.

So, that’s the tricky balancing act that the current government and any future ones must face.

Kyle Caldwell: For those who are receiving the full state pension, the state pension is set to rise by 4.8% in April, and it’s the earnings element of the triple lock that is being used. I think that’s been the case for the past couple of years.

So, in pounds and pence, that’s a £575 increase, which takes the state pension up to £12,547.60.

The state pension is creeping pretty close to the personal tax allowance of £12,570. That personal tax allowance is due to be frozen for a good couple more years. So, does that mean in future, potentially next April, that those who are just reliant on the state pension, they’ll actually start paying tax from some of it?

Craig Rickman: Yeah. Under the triple lock mechanism, then those who receive the full state pension will pay tax on it because certainly once the increase from April comes in, it’ll be rubbing up very, very close to the tax-free allowance.

And, as you say, that allowance is due to be frozen until 2031. So, if the triple lock remains in place and the state pension continues to increase, then people will start paying tax on the state pension.

At the Autumn Budget 2025, Rachel Reeves did say for those who rely solely on the state pension that they won’t pay tax on it. So, there’s going to be some kind of initiative, some kind of policy, that will protect them. That’s very contentious, and the practicalities of that are unclear. I don’t have too much idea about how that would work. But that’s what she said, and maybe we’ll find out more about that later this year.

Kyle Caldwell: So, we’ve covered the fact that the state pension age will shortly be rising to 67 and is due to rise in the future to 68.

Now, for those in their 20s or 30s, by the time they get to retire, the likelihood is the state pension age will be a fair bit higher than 68. For those in that position, what would you [suggest] for them in order to prepare for that scenario?

Craig Rickman: The tricky thing is that with the state pension, there’s a lot of pessimism around it, particularly among younger people.

That was one of the findings from our Great British Retirement Survey last year, but you can’t control what happens to it. You can’t control the ages, and there’ve been a lot of changes to the state pension age in recent years. We saw the equalization between men and women, and then we’ve seen it rise from 65 to 66, 67 - happening over the next couple of years - and then in the future to 68. Whether that will be brought forward is, like we’ve been saying, a big talking point.

You can’t control that, but the key is to have a plan for your future and focus on the things that you can control, so your personal savings. The state pension age - it doesn’t necessarily mean that’s the age that you have to target to retire. A lot of people want to retire before that while they’re fit and healthy. So, if that’s what you want to do, you’re going to need some sufficient private savings.

In fact, you’re going to need sufficient other savings even if you want to retire at state pension age if you want to reach your golden years with any kind of financial comfort. So, the key is to take matters into your own hands and start planning as soon as you possibly can.

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Kyle Caldwell: That’s a very key point you’ve just made there, Craig, that it’s very important for people to control their own destiny in terms of saving and investing towards their own retirements in personal pensions, and potentially also having an ISA, and mixing and matching between both a self-invested personal pension, a SIPP, and also having ISA savings.

The more gloomy commentator would say that in future, there may not be a state pension or that the state pension may be means tested. What are your thoughts on both of those, Craig?

Craig Rickman: Well, I’ve been in this industry for 20 years, and there’s always been concerns about the future of the state pension, and whether it will exist in the future.

My view hasn’t really changed, and it’s that I think there will always be a state pension. I think there has to be a state pension, but the age that it will be available, particularly for younger generations, might be jacked up.

I mean, we don’t know. We’ll have to wait and see the outcome of this review that’s ongoing, which we should get potentially next year. But that’s my view.

I understand the pessimism around it. But my view is that there will always be a state pension. But, the age that younger generations might be able to claim it might be a bit higher.

Kyle Caldwell: And your thoughts on potential means testing - is this potentially something that a current government or future government won’t touch with a barge pole, the notion of the state pension being means tested? It would be a very contentious policy to introduce.

Craig Rickman: It’d be very controversial and could be quite messy, and difficult to administrate as well. I’d be surprised if we ever moved to means testing. We should wait and see.

Kyle Caldwell: Well, Craig, let’s leave it at that before we go down any further rabbit holes. Thanks for your time today.

Craig Rickman: Thanks again for having me.

Kyle Caldwell: That’s it for our latest On The Money podcast episode. If you’ve got any ideas for topics you would like us to cover or any questions you’d like us to tackle, then do get do get in touch by emailing OTM@ii.co.uk.

In the meantime, you can find plenty of articles related to pensions, investments, and personal finance on the interactive investor website, which is ii.co.uk. I’ll see you again next week.