(Bloomberg) — The U.K. will raise the age at which citizens can claim the state pension to 68, earlier than planned, as the government grapples with the mounting costs of an aging population.
The pensionable age will be raised to 68 over two years starting in 2037. The change, which has been brought forward seven years, will affect people born between April 6, 1970, and April 5, 1978. The children of the baby-boomer generation will now have to work longer to help fund their parents’ retirement.
“We could have put this off, we could have failed to address it, we could have kicked it into the long grass, but it’s important to the future of this country that we have a government willing to take these long-term decisions,” Work and Pensions Secretary David Gauke told lawmakers in the House of Commons on Wednesday.
The change reflects Britain’s changing demographics: a rising proportion of the population is old enough to claim a pension, and retirees are living longer. The flip side is a smaller proportion of the population is funding pensions through their taxes. All this comes against a backdrop of a mature economy unable to sustain postwar growth while forced into austerity during the financial crisis.
The announcement also underlines the weakness of Prime Minister Theresa May after her Conservative Party’s catastrophic result in last month’s snap general election.
She had hoped to reduce the cost of state pensions with a pledge in her manifesto to scrap the so-called “triple lock” that guaranteed relatively generous annual increases. But after losing her majority, May cut a deal to secure the support of the 10 lawmakers from the Democratic Unionist Party, which insisted she drop the measure.
Under the triple lock, the state pension increases every year by the rate of inflation, wage growth, or 2.5%, whichever is greatest. The Tories said they would replace it with a double lock in 2020, scrapping the 2.5% provision. Gauke said last month the triple lock may be gone within a decade.
The main opposition Labour Party pushed back against what it characterized as an extension to the ruling Conservatives’ austerity policies, saying that if it was in government it would keep the retirement age at 66.
“This is an astonishing continuation of austerity that means 34 million people will work longer than under Labour’s plans,” Labour’s work and pensions spokeswoman, Debbie Abrahams, said in a statement. “Most pensioners will now face what has been described as a “toxic cocktail” of ill health throughout their whole retirement.”
Under current plans, the state pension age will rise to 66 by 2020 and to 67 by 2028. The Office for National Statistics predicts the number of people old enough to claim pensions will rise to 16.9 million in 2042 from 12.4 million currently. At the same time, people are living longer, and a person reaching the current pensionable age of 65 this year can expect to live for another 22.8 years, compared with 13.5 years in 1948.
“Failing to act now in light of compelling evidence of demographic pressures would be irresponsible and place an unfair burden on younger generations,” Gauke’s department said. “Keeping the state pension age at 66 would cost over 250 billion pounds ($323 billion) more than the government’s preferred timetable by 2045/46.”
—With assistance from Thomas Penny.
— Read Want a Flexible Retirement? Here’s How 10 Countries Stack Up on ThinkAdvisor.