State Pension Age to rise faster in emergency budget

Date: 24 June 2010

In this week’s emergency budget, the new government announced that it will review the age from which you can claim your state pension.

The government’s intention is to help cut the deficit by bringing forward the rise in state pension age so that it rises to 66 for men by 2016 and 66 for women by 2020.

The previous government’s plan had been to raise state pension age to 66 for men and women by 2024.

At Usdaw’s National Pensions Conference in Warrington on 9 June, General Secretary John Hannett spoke about the new government’s proposal to speed up the rise in state pension age:

“People living in the more deprived areas of the country – where improvements in life expectancy trail behind the rest of the country – will be unfairly disadvantaged.”

“It also means that someone who is 60 today – who has already put plans in place for their impending retirement – will suddenly and unexpectedly face the prospect of having to work for an extra year longer before they can claim their state pension – this isn’t the right thing to do.”

Elsewhere in the budget, changes to the way the Basic State Pension increases every year were also announced.  From April 2011, the Basic State Pension will increase by whichever is the highest of the following three:

  • the rise in the Consumer Price Index (CPI), or
  • the rise in National Average Earnings (NAE), or
  • 2.5%

Key benefits for older people, including Winter Fuel Payments, free off-peak local bus travel, eye tests and prescriptions for those aged over the female State Pension Age, and free television licences for those aged over 75 are all to be protected.

The government will also consult on phasing out the Default Retirement Age – that’s the age at which your employer can dismiss you.  The previous government already held a consultation on this earlier this year.  It’s expected that the Default Retirement Age will definitely go – but how soon and how quickly we don’t know.

The current rule that says you have to convert your pension savings into a pension annuity no later than your 75th birthday is to go.  The idea is to enable individuals to make more flexible use of their pension savings but in truth most people will have annuitized their pension savings well before age 75.

Finally, the government will stick to plans to restrict the tax relief that high earners receive on their pension savings but are going to look into achieving it by reducing the annual allowance.

The annual allowance is the amount of pension benefits you can build up in a year and receive tax relief.  At the moment the annual allowance is £255,000.  The government may reduce it as low as £35,000.