State Pension age rising to 70 even though UK State Pension is lowest in the world - Ros Altmann
  • ROS ALTMANN

    Ros is a leading authority on later life issues, including pensions,
    social care and retirement policy. Numerous major awards have recognised
    her work to demystify finance and make pensions work better for people.
    She was the UK Pensions Minister from 2015 – 16 and is a member
    of the House of Lords where she sits as Baroness Altmann of Tottenham.

  • Ros Altmann

    Ros Altmann

    State Pension age rising to 70 even though UK State Pension is lowest in the world

    State Pension age rising to 70 even though UK State Pension is lowest in the world

    • UK State Pension officially the worst in the world – but still needs to be cut further.
    • Middle income groups receive worse pensions than any other country in the OECD.
    • Government actuaries say under-30s won’t get state pension till their 70s as new State Pension system is unaffordable.

    The Government Actuary says the UK State Pension is not sustainable, even though it is the lowest in the developed world, according to latest OECD figures.

    UK bottom of the global pensions league table: No other country has a less generous State Pension than ours for average earners. Even Chile, Poland and Mexico pay better State Pensions than the UK for middle income groups. With our aging population, and a decline in traditional final salary-type pension schemes, the UK faces rising risks of old-age poverty.

    Net pension replacement rates for average earners (state pension as a % of earnings):

    Country                                                % of average earnings

    Netherlands                                                   100.6
    Portugal                                                               94.9
    Italy                                                                       93.2
    Austria                                                                  91.8
    Spain                                                                     81.8
    Denmark                                                             80.2
    France                                                                  74.5
    Belgium                                                                66.1
    Finland                                                                 65.0
    Czech Republic                                                  60.0
    Sweden                                                               54.9
    Canada                                                                53.4
    Germany                                                             50.5
    USA                                                                       49.1
    Norway                                                                48.8
    Switzerland                                                        44.9
    New Zealand                                                     43.2
    Australia                                                              42.6
    Ireland                                                                  42.3
    Chile                                                                      40.1
    Japan                                                                    40.0
    Poland                                                                  38.6
    Mexico                                                                   29.6
    UK                                                                          29.0

    OECD average                                              62.9

    Source: OECD ‘Pensions at a Glance’ Table 4.8 December 2017

    State Pension has already been reduced, but will have to be cut further:  In April 2016, major reforms to the UK State Pension were supposed to have made the system affordable for the future, reducing its generosity. Beyond the 2030s, the new State Pension will be lower than the old system for most people and the lowest paid, predominantly women, will generally lose significantly from the new system. Despite this, the Government has been advised, by its own actuaries, that the costs of paying State Pensions will soar so much over the next 20 years and beyond, that further cuts could be required.

    Even though UK State Pension is lowest in the world, it needs to be cut to avoid massive tax rises – perhaps dropping triple lock: The Government Actuary believes that just funding the UK’s exceptionally low State Pension will require reducing payments in future or dramatic tax rises. The options would include dropping the triple lock (which increases the new State Pension in line with the highest of earnings inflation, price inflation or 2.5%) and increasing State Pensions in line with average earnings instead, or possibly doubling National Insurance rates for average workers. Policymakers face difficult decisions and are also likely to need to increase State Pension age further.

    Everyone aged 30 or below will get no State Pension till their 70s: State Pension age has been rising since 2010 and will reach 66 by 2020, increasing further to 67 and then to 68 under existing legislation. However, the Government Actuary assumes state pension age will be 70 in the 2050s and 71 in the 2060s. This means anyone aged 30 or below, will not get their state pension until they are age 70. And those aged 20 or younger will have to wait until they are 71.

    More to do to address UK pensions crisis – including making private pensions more attractive: We are one of the world’s leading economies, but our support for the oldest in society is not fit for purpose. Even though most people will receive the lowest State Pension in the developed world, the costs of providing for our aging population have not yet been brought under control. To avoid burdening younger generations with significant tax rises, it is vital that more is done to boost private pension saving. Auto-enrolment is a good start but the pensions industry needs to attract more customers to pay more into their pensions.

    Here is a link to the Government Actuary report https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/653374/QR_2017_report_Oct_2017.pdf

    ENDS

    One thought on “State Pension age rising to 70 even though UK State Pension is lowest in the world

    1. Baroness Altmann
      I read reports recently in the Press where you were criticising the fact people were raiding pension funds of money that they would need in later life. Of course the ideal would be to leave funds to increase the size of the pot, but what is a person expected to do if they lose their job and are too young to receive the state pension?
      I have been made redundant three times in my life, at the ages of 40, and then 59. In both these cases I was lucky enough to get another job which meant I didn’t need to use my fund for living expenses and could leave it to earn more money, but if I had not got another job at 59, I would have been forced to use it to live. My last redundancy wat at the age of 65, and I was able to claim the state pension.I haven’t got a brother in the form of Boris Johnson to elevate me to the peerage and the expenses which can be claimed once there.
      There is also the tax-free element of the funds which people can be encouraged to withdraw, and which earn nothing more once withdrawn.
      I have friends who were granted a final salary scheme at the age of 50 and who, after 15+ years of relatively comfortable funded retirement will be able to draw the state pension as a welcome boost to their income, rather than the passport to poverty it becomes for so many.
      I have great respect for you and agree entirely with what you say, but it’s a bit like Prince William advising a young family struggling to get on the housing ladder in inner city Nottingham to have a word with their grandparents to see if they have one they can let them use.

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