Andy Burnham faces the pension issue right from the start
To keep costs down, the Treasury has indicated that the retirement age needs to be raised to 68 as early as 2037. The OECD is also calling for an end to the system that links increases in state pensions to the highest of three benchmarks
LONDON – The new Labour Prime Minister, Andy Burnham, who is due to take office on Monday, will have to make difficult decisions that can no longer be avoided. The priority is to reduce public spending and, in particular, the cost of state pensions, which has risen to unsustainable levels and this year exceeded 146 billion pounds – more than double the defence budget. The Department for Work and Pensions estimates that, without reform, spending would rise to 169 billion by 2030.
The UK Treasury outlined a first step yesterday: the age at which people can claim a state pension will be raised from the current 66 to 68 as early as 2037, rather than 2044 as provided for in the Pensions Act 2007, and will then rise further to 69 around 2070.
The seven-year delay affects around five million people aged between 49 and 55, who will have to work for an extra year before becoming eligible for a state pension. The government’s aim is “to make state pensions sustainable in the long term”, said Torsten Bell, the state secretary responsible for pensions.
Given the rise in life expectancy, the gap is widening between an ever-increasing number of people receiving the monthly state benefit and a decreasing number of workers whose contributions fund the system. The latest report from the Office for Budget Responsibility (OBR), the independent watchdog for public finances, highlights that if the 2044 deadline were to be maintained, the cost to the Treasury would be £6 billion a year. To prevent this from becoming too burdensome for public finances, it is therefore necessary to increase “the active participation of people aged between 65 and 69 in the labour market”, explains the OBR.
Industry experts have urged the Government to clarify the timing and details of the changes to the state pension in order to provide certainty for today’s 50-year-olds, enabling them to plan how much to save. The Treasury’s announcement is, in fact, currently merely a statement of intent which, to become law, must be approved by Parliament, amending the Pensions Act currently in force. The Government will have to introduce and secure approval for the legislation by 2027, as the rules stipulate that at least ten years’ notice must be given for any change to the state pension age.
