Fancy working until you are 73?
December 28, 2011 § Leave a comment
Those in their twenties now may have to work into their seventies
Anyone under 30 should brace themselves for working well into their seventies after the chancellor confirmed the state pension age would rise in line with life expectancy.
More immediately, George Osborne tore up the retirement plans of about 8m people aged between 44 and 51, saying they would not now receive a pension until 67. They will have to save £600 a year if they want to retire at the same age and make up the lost pension.
The state pension age had been due to rise to 67 between 2034 and 2036 under Labour government plans, but the coalition has brought this forward to between 2026 and 2028, saving about £60 billion in today’s prices between 2026–27 and 2035–36 according to Standard Life, the insurer.
The coalition had already announced a rise to 66 by 2020, instead of 2024 under the previous government. This will hit women particularly hard, as their retirement age was already due to rise from 60 to 65 between now and 2020 and they therefore face working not one but two extra years.
The government is also to consider basing future rises in the state pension age on demographic evidence — in other words, rising life expectancy.
There was good news for existing pensioners. Single people will get a £5.30 rise in the state pension next year, up to £107.45 a week, and married couples will be £8.20 better off, at £171.85.
I’m in my early fifties, what should I do?
The loss of every year’s basic state pension costs nearly £5,600 in today’s money. However, the second state pension, which is a top-up to the basic pension based on your earnings, is worth typically about £5,000 a year (double this for higher earners). This is also postponed and takes the loss to £11,000-£15,000.
This black hole faced by those in their late forties and early fifties could be filled by saving about £600 a year, increasing in line with inflation, until retirement. This should produce the equivalent of about £11,000 today, if it grows at a modest 2% above inflation.
I’m younger, what do the changes mean for me?
According to the Office for National Statistics, life expectancy is increasing by 1.5 to 2 years every decade. If this continues, by 2026 a man will live until 88, enjoying 21 years in retirement, with his wife living to 91.
As things stand, anyone starting work at 16 today will not receive a state pension until they are 72, according to Standard Life. Those between 37 and 44 will not retire until 68, with those in their twenties and thirties forced to wait until 70.
John Lawson, pensions director at Standard Life, said: “All this underlines the vital importance of starting to save at the youngest age you can, to make sure you have enough to live on when you want to retire.”
I’ve retired, what did the budget mean for me?
As well as the rise in the basic state pension, the poorest pensioners will also enjoy a £5.30 boost to the guaranteed minimum income top-up. This climbs 3.9% to £142.70 for single people and by £8.50 to £217.90 for couples.
However, pensioners with small savings may be hit by cuts to the savings credit. Currently, if you have a weekly income through state and private pensions of up to £188, you can qualify for an additional weekly savings credit of £20.50 designed to reward saving.
The starting point for calculating this credit will rise to £111, with the effect that the maximum payable will be cut to about £19.
The personal tax allowance for over-65s will rise in April to £10,500 for those up to 74, and to £10,660 for the over-75s. The income limit at which this higher allowance begins to be clawed back will also rise, from £24,000 to £25,400.