Queen's Speech: State pension age to rise faster
- 25 May 2010
- From the section Business
Speeding up the raising of the state pension age from 65 to 68 is to be part of the UK government's first reforms.
The plan will be in the Pensions and Savings Bill, which was outlined in the Queen's Speech.
The state pension age is already scheduled to rise to 68 in stages, between 2024 and 2046.
Separately, the government will also restore a link between the basic state pension and the rise in average earnings, from 2011.
The move should lead to a substantial long-term improvement in the value of the state pension.
Its value as a proportion of earnings has declined, from 26% to 16%, since the old link between average earnings and the state pension was cut in 1980, and replaced with a link to inflation as measured by the Retail Prices Index.
As well as linking the state pension increases to the rise in average earnings, the government has also already pledged to raise pensions in any case "by the higher of earnings, prices or 2.5%".
It was the Labour government's policy in recent years to raise state pensions by at least 2.5%, even if inflation was lower, though this was a discretionary policy renewed each year.
The coalition describes its new approach as giving pensioners a "triple-lock" so they will always benefit from a minimum 2.5% annual rise.
The state pension age was scheduled to rise to 66 between 2024 and 2026, under plans laid down by the previous Labour administration, with two further increases at 10-year intervals to eventually take it to 68.
The government's review will look at whether the continued increase in longevity makes the current timetable outdated, and if the increases in state pension age should come in earlier.
John Ball, at pension consultants Towers Watson, said: "While attention has focussed on how soon the state pension age will rise to 66, the bigger question is what happens afterwards."
"Rather than rising to 68 by 2046, we could see it going up further and faster. In Ireland, it is set to reach 68 by 2028."
Mr Ball said the official life expectancy projections had been revised "dramatically" since the plan to raise the state pension age was announced.
"The logic used to justify a state pension age of 68 by 2046 could now justify a state pension age of 70 by then," he added.
The government said its forthcoming bill would "implement the findings of the review of the current timetable for increasing the state pension age, if the review finds that the existing timetable is no longer appropriate".
However, it has already said the first move, to 66, "will not be sooner than 2016 for men and 2020 for women".
Also included in the Queen's Speech was a National Insurance Contributions Bill, which will raise national insurance (NI) contribution rates from April 2011.
The changes are set to raise an extra £9bn and will help to pay for an increase in personal tax allowances, though the exact size of the increase in the allowance will be revealed in the forthcoming Budget.
The money raised by higher NI contributions will also help to fund an increase in the threshold at which they are paid.
"Under the full changes, most people would be better off relative to the previous government's plan, and relative to no changes, all low and middle income employees would pay less tax and NI contributions overall," the government said.