The Institute for Fiscal Studies (IFS) has issued a warning that the state pension in the UK would have to increase to 74 by 2069 in order to uphold the triple lock promise, as per a recent report. This concern arises from the demographic shift towards an older population, which could render the current government policy unsustainable.
Currently, the state pension age for individuals retiring is gradually moving from 66 to 68. The triple lock mechanism ensures that the state pension rises annually by the highest rate among inflation, wage growth, or 2.5%. However, the IFS cautions that without adjustments to the state pension age, the triple lock could cost taxpayers up to £40 billion per year.
To address this challenge, the IFS has proposed a double lock system that ties state pension increases to either wages or inflation. Chancellor Rachel Reeves has committed to maintaining the triple lock until 2029.
According to the latest IFS report, significant increases in the state pension age would be necessary to contain state pension expenditure below a certain percentage of national income. The report suggests that to keep public spending on the state pension under 6% of national income while retaining the triple lock, the state pension age would need to be raised to 69 by 2049 and 74 by 2069.
Mike Ambery, Retirement Savings Director at Standard Life, emphasized the need for a nuanced approach to address widespread under-saving and pension gaps, particularly for self-employed individuals and younger workers. Striking a balance between savings adequacy and inclusivity will be crucial, requiring careful consideration and consultation, especially with employers.
The state pension age is already set to increase to 67 between 2026 and 2028, with a subsequent rise to 68 scheduled between 2044 and 2046. The state pension is distinct from private or workplace pensions, and individuals can check their state pension age and forecast online to determine their entitlement.
There are two types of state pension based on birth dates, with different weekly rates. The amount of state pension received depends on an individual’s National Insurance record, with a minimum requirement of qualifying years for full entitlement.