The UK State Pension age could rise to 74 by 2069 to ensure the government can meet its funding promises, according to a recent report by the Institute for Fiscal Studies (IFS).
This increase would be necessary to maintain the triple lock system, which guarantees that pensions rise each year by the highest of inflation, wage growth, or 2.5%. However, the IFS warns that this policy may become unaffordable due to the growing costs of an ageing population.
In its latest report, the IFS estimates that to keep public spending on pensions below a sustainable level, the State Pension age would need to rise to 69 by 2049 and 74 by 2069.
Without adjustments, the cost of the triple lock could burden taxpayers by up to £40 billion annually. While Chancellor Rachel Reeves has pledged to keep the triple lock in place until 2029, the IFS suggests that significant changes will be needed beyond that point.
The Challenge of Funding the Triple Lock
The triple lock ensures that pensions increase each year by the greatest of three metrics: inflation, wage growth, or 2.5%. This has resulted in a guaranteed rise in State Pensions, providing financial stability for retirees.
However, the IFS has raised concerns that with an ageing population, keeping the policy in place would place unsustainable pressure on public finances.
As a result, the IFS is calling for the government to consider moving to a “double lock” system, where pensions increase based only on either inflation or wage growth, potentially making the system more manageable.
A Broader Discussion on Pension Reform
The IFS’s report highlights issues of widespread under-saving and gaps in pension provision, particularly for self-employed individuals and younger workers.
Mike Ambery, Retirement Savings Director at Standard Life, supported the IFS’s findings and stressed the need for an inclusive solution that accommodates these underrepresented groups.
He also pointed out the challenge of striking a balance between adequate saving and preventing over-saving, particularly for those with low incomes.
As the report suggests, the government must carefully consider these factors when reviewing pension adequacy, with consultation, particularly with employers, being essential for any significant policy changes.
Types of State Pension
The UK operates two types of State Pension, depending on an individual’s birth date. The new State Pension is available to those born on or after April 6, 1951 (men) or April 6, 1953 (women), and it offers a full rate of £230.25 per week.
Those born before these dates qualify for the basic State Pension, which provides a full rate of £176.45 per week.
The amount of State Pension an individual can claim depends on their National Insurance contributions. To receive the full new State Pension, an individual must have 35 qualifying years on their record. At least 10 qualifying years are required to receive any amount of the new State Pension.
