New State Pension Age (SPA) – How will it affect your retirement plans?

In July this year, David Gauke the Secretary of State for Work and Pensions announced new plans meaning that the rise in the SPA to 68 will now be phased in between 2037 and 2039 rather than from 2044 as was originally proposed. The changes were announced after the Government accepted the recommendation of ex-Confederation of British Industry boss John Cridland, who carried out an official review of future state pension age increases.

 Those affected by the changes are those born between 6 April 1970 and 5 April 1978 and currently between the ages of 39 and 47, but the exact date that individuals can expect to receive their State Pension will depend upon the year and month of birth.

Why is it changing?

The changes to the SPA are aimed at bringing women’s SPA into line with men’s, and taking account of everyone living longer.

When the State Pension was introduced in 1948, a 65-year-old could expect to spend 13.5 years in receipt of it – around 23% of their adult life. This has been increasing ever since. In 2017, a 65-year-old can now expect to live for another 22.8 years, or 33.6% of their adult life.

David Gauke said: “Since 1948 the State Pension has been an important part of society, providing financial security to all in later life. As life expectancy continues to rise and the number of people in receipt of State Pension increases, we need to ensure that we have a fair and sustainable system that is reflective of modern life and protected for future generations”.

State Pension age under the latest plans (July 2017) 

Between October 2018 and October 2020, both men and women’s SPA will increase to 66, between 2026 and 2028, it will rise to 67, before rising again to 68 between 2037 and 2039.

‘For those in their 30s and younger, whilst no announcements have been made, future changes could mean that they may well have to wait until at least the age of 70 before they receive a state pension.

Your date of birth State Pension age
After 6 April 1978 68
6 April 1970 to 5 April 1978 67 years 1 month to 68 years*
6 April 1960 to 5 April 1970 66 years 1 month to 67 years*
6 December 1953 to 5 April 1960 65 years 3 months to 66 years*

*Depends on exact date of birth

 Changes to the ‘normal minimum pension age’

The normal minimum pension age (NMPA) – which should not be confused with your SPA – is the youngest age at which an individual can ordinarily expect to take benefits from a private or company pension scheme.  Whilst changes to state pension have attracted a significant amount of publicity, increases to the NMPA seem to have gone almost unnoticed.

Previously, the earliest age that you could take benefits from your private pension savings was 50. However, this was raised from 50 to 55 by the departing Labour government in 2010 and it’s going to rise again.

The 2015 Spring Budget announced major changes to the way in which you could access your private pensions (widely known as Pension Freedoms), but almost hidden in the small print was the suggestion that whilst access to individual’s pensions would be made easier, it would also be later.

Current government proposals suggest that the normal minimum pension age will increase in line with increases to State Pension Age so that it is always ten years earlier than SPA. These changes will come into force from 2028, by which time, the SPA will have increased to 67, meaning that individuals will have to wait until the age of 57 to be able to draw their private pension savings.  The bringing forward of the SPA to age 68 by 2039 therefore also means that individuals will not only have to wait an extra year to receive their state pension, but will also have to wait an extra year before they can even think about drawing from their private pension pots. And that’s on current proposal’s – who knows what other changes may be made in the future?

Saving harder for our own retirement

The Government has committed to regular reviews of the State Pension age in the years ahead, which inevitably raises the prospect of further rises. It also seems evident that the Government is taking a gradually declining role in supporting retirement income. A combination of increases in life expectancy, and the growing number of retirees relative to the working age population, means that individuals will now have to save harder for their own retirement.

What will your retirement look like?

 Whatever happens; as set out in blog last week – Planning for your Independence –  if it is important to you that if and when you choose to stop work you can spend your time the way you want to, doing those things that you always intended to do, then it is vital that you structure your financial affairs accordingly.  To find out more about how we can help you understand your own situation and retirement goals or the different pensions and savings options you could utilise, please contact us.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF  LEGISLATION AND REGULATIONS, ALL OF WHICH ARE SUBJECT TO CHANGE.

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