Those most affected by the increase in retirement age for state pensions question the necessity of extending work life: Is prolonged employment essential?
In August, the UK government launched the third review of the state pension age, exploring the possibility of automatically increasing the state pension age in line with rising life expectancy, potentially reaching 70. This move, if implemented, could have significant implications for millions of Britons nearing retirement age.
The review comes amidst a growing trend among European nations, with countries like Germany, France, Spain, and the UK committing to raising the retirement age. Japan and Sweden have adjusted their pension calculation formulas to account for increased life expectancy, while Denmark, which already links state pension payments to life expectancy, recently raised its retirement age to 70, effective by 2040.
However, a new study by the Institute of Fiscal Studies (IFS) suggests that the rise in state pension age has had a disproportionate impact on women out of employment in their late 50s. This group has been particularly hard-hit, experiencing a bigger drop in income as a result of state pension age increases. The IFS pointed out that these rises led to a big boost in employment but also pushed more people into income poverty.
Interestingly, for women who were in paid work in their late 50s, their employment rate at ages 60 to 64 jumped by 16 percentage points, as significant numbers delayed their retirement. In contrast, very few women out of employment in their late 50s re-entered paid work in response to the state pension age increase.
The current state pension age is 66 for both men and women, and it is scheduled to rise to 67 between 2026 and 2027, and to 68 in 2044 to 2046. From 2027, pensioners relying solely on the state pension will pay income tax for the first time.
The review will assess the merits of implementing automatic adjustments to strengthen government finances and ensure the long-term sustainability of the state pension. Catherine Foot, director of the Standard Life Centre for the Future of Retirement, emphasized that ensuring people nearing state retirement age can remain in work is essential for many people's retirement incomes as well as the country's economic growth prospects.
The government's growth agenda relies on retaining older workers, as over 50s leaving the workforce has a major impact on the output of the Industrial Strategy sectors, and an estimated £31 billion of output is lost each year from individuals retiring early before state pension age.
However, the affordability of these changes is a concern. The full new state pension is expected to increase by just over £560 a year next April, raising questions about its affordability for the government.
In conclusion, the proposed changes to the state pension age in the UK have far-reaching implications for millions of Britons. While the increases could help ensure the long-term sustainability of the state pension, they also pose challenges for those who may struggle to continue working beyond the traditional retirement age. The ongoing review aims to balance these considerations and determine the best course of action for the UK's future.
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