Increases to the state pension age mean approximately 670,000 people each year will have to wait longer before benefitting, while the government could save £11bn a year in this time, according to analysis from Aegon.
This saving could therefore be used to fund the increased costs of NHS and social care as we face an aging population, the firm said.
Those due to celebrate their 65th birthday in the 12 months starting from 6 December 2018 have the dubious honour of being the first group in almost a century to have to wait longer for their state pension. In mid-2017, there were 326,933 men and 345,922 women aged 65 and, although the figures vary, this means that approximately 670,000 people will celebrate their 65th birthday in the twelve months.
The state pension age for men has been 65 since 1925, and it became 65 for women from 6 November 2018. However, just one month later, starting in December 2018 and spread over the course of 48 months, it will gradually increase for both men and women to age 66. Starting in December 2028, the state pension age will again increase to 67.
Since 1925, life expectancy has increased drastically, with men expected to live for an additional 18.32 years once reaching 65, whereas it was just 11.3 years back then, according to figures from the Office for National Statistics. Life expectancy increased further for women, who were expected to live for a further 13.07 years in 1925, compared to 20.88 years today.
As people are living longer, state pensions are paid over a longer period and to more people, therefore costing more. State pensions do not have a specific fund and are instead paid from National Insurance contributions paid by today’s workers, so the government has justified increasing the state pension age to keep it affordable.
The full amount of the new state pension is currently £164.35 per week, or £8,546 per year. However, only those that have contributed towards National Insurance for 35 years receive this, while others who have entitlements to a previous earnings related state pension may be entitled to more. Assuming everyone received the full level, Aegon calculated that, if 670,000 people a year miss out on a year’s worth of state pension, the government will save over £5.7bn a year.
When looking ahead beyond 2028, around 670,000 people at age 65 and a similar number at 66 waiting longer for their state pension will generate double (£11.4bn) in savings to the government.
Commenting, Aegon pensions director Steven Cameron said: “Hopefully, these increases [to the state pension age] won’t come as a shock and will have been communicated better than to the Waspi women who saw their state pension age increase by five or more years.”
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