Changes to state pension age bring challenges

Linking the state pension age to life expectancy means we could easily see people having to wait many more years before they get their state pension.

The Chancellor announced that someone in their 40s won’t get their state pension until they are aged 68; the linkage to life expectancy is likely to mean someone starting work now will have to wait to age 72, and a child born today is unlikely to receive their state pension until they reach 75.

Individuals face the increasingly stark challenge of making sure they have a sufficient amount put away for their retirement. Many are realising that they will need to work much longer than they had originally planned, but they are not necessarily recognising the amount they need to save for themselves in order to have a comfortable retirement.

The younger generation will be particularly hit by these changes and many will have to accept they’ll be working longer than their parents. Even with millions of younger workers being auto-enrolled into a pension scheme, the younger generation can’t expect anywhere near as much from their employer’s workplace pension as their parents or grandparents.

Our research shows that a new graduate being auto-enrolled on the minimum requirement is only likely to end up receiving a total of a third of their final salary as a pension, even after saving for their entire working life.

The plans to review state pension age every five years layers on yet more complexity for workers wanting to plan for their retirement. It is vital that constant changes do not further erode trust in pensions and that people are given adequate time to prepare for the changes and adjust their saving plans appropriately.

It’s not all bad news. This Government cut back could, counter-intuitively, have an expansionary effect on the economy as our analysis suggests an additional four million experienced workers could remain in the workforce once these changes have come through. Employers, and the economy as a whole, should prepare itself for a larger workforce, with the potential to drive economic growth. But this does not come without challenges for employers and the employees themselves – considerable planning is needed to ensure these changes do bring economic benefit.

We welcome the opportunity for people to make additional National Insurance contribution to boost their state pensions - an open defined benefit scheme that people can participate in.

Ed Wilson is a director in our Pensions team. You can contact him on +44 (0) 20 780 42535 or by email at [email protected]

We’ll be giving our insights on the impact of the Chancellor’s Autumn Statement in tomorrow’s live webcast at 1.30pm on Friday 6 December.

You can watch the webcast here.

For our full commentary and analysis on the Autumn Statement visit