The state pension age could rise to 68 sooner than expected, according to a report from the Office for Budget Responsibility (OBR). This change could affect millions of workers who will have to work for an additional year before being eligible for their state pension. The OBR's latest Fiscal Risks and Sustainability Report suggests that state pension spending is projected to increase from 5% to 9% of GDP over the next 50 years.
The report also states that a policy assumption underpinning the state pension projection is around future changes to the state pension age. In its baseline scenario, the OBR assumed that the state pension rises to 68 between 2037 and 2039 and then to 69 in the 2070s. This is different to the current trajectory that suggests the state pension age will rise to 68 in 2044/45.
Keeping to the timetable would cost an average additional £6 billion in today's terms in each of the years the state pension age rise is delayed. The OBR said that the Treasury has confirmed that this is the government's current policy position, rather than the legislated increase set in the Pensions Act 2007.
Experts suggest that people can prepare for state pension age changes by making small, regular pension contributions, combined with tax relief and investment growth over time. This can provide valuable flexibility and help reduce dependence on an increasingly stretched state pension system.
While no one welcomes changes to the goalposts, starting early can make a significant difference. For example, someone aged 49 could build a fund capable of replacing a year's projected state pension with contributions costing just over £50 a month after basic-rate tax relief.