State pension age raised to 68: Government announces millions will have to work an extra year

Millions of British workers will have to work an extra 12 months after the government announced the state pension age will raise to 68 over two years from 2037.

The Work and Pensions Secretary David Gauke unveiled the proposal on Wednesday afternoon (19 July), indicating those born before 5 April 1970 will not be affected.

The new plan means increase to the state pension age will be brought forward, as retirement ages were originally scheduled to rise to 67 by 2028 and to 68 by 2046. However, the latter increase was only due to begin in 2044 and experts have warned the new proposals would mean over five million people currently under the age of 47 will work an extra year.

Gauke stressed the need for the government needed to ensure Britain had a "fair and sustainable system" that reflected the current environment.

"I want Britain to be the best country in the world in which to grow old, where everyone enjoys the dignity and security they deserve in retirement," he said.

"Since 1948 the state pension has been an important part of society, providing financial security to all in later life.

"As life expectancy continues to rise and the number of people in receipt of state pension increases, we need to ensure that we have a fair and sustainable system that is reflective of modern life and protected for future generations."

The pension age currently stands at 65 and 63 for men and women respectively, but previously announced plans included steadily rising the pension age for women to bring it to 65 by 2018.

The government has come under pressure to tackle the growing number of non-working people who will have to be supported by workers, a problem which is likely to be exacerbated by Britain's ageing population.

According to the Office for National Statistics, the number of Britons aged 75 and over will have surged by 89% to 9.9 million by 2039.

The ratio between workers and non workers has fallen to 1.3, compared with a high of 1.4 in 1985.

"Combined with our pension reforms that are helping more people than ever save into a private pension and reducing pensioner poverty to a near record low, these changes will give people the certainty they need to plan ahead for retirement," Gauke added.

In March, John Cridland, the former director general of the Confederation of British Industry, suggested the state pension age should rise to 68 between 2037 and 2039.

Ed Monk, associate director for personal investing at Fidelity International, said that while the changes will be unpopular, they are necessary if the current system is to be made sustainable.

"The population is growing, ageing and living for longer and accelerating the rise in the state pension age is just making us walk faster up a path which we were already on," he said.

"We should not be too pessimistic about retiring later. Being 68 years old in 2037 will not be the same as being 68 in 1948, when the modern state pension was introduced. In general we're becoming healthier and more active in later life and so better able to cope with working longer."

Jon Greer, head of retirement policy at Old Mutual Wealth, acknowledged the changes will prove to be controversial, adding it meant the retirement age was catching up with years of increasing life expectancy.

"Government deserve some credit for biting the bullet and taking the unpopular decision to increase the state pension age," he said.

"However, it appears they were not convinced that more creative solutions were administratively viable. The 'universal' State Pension age we currently operate under means that retirement age applies equally to everyone. While it is possible to delay retirement and take a higher pension in exchange, the same flexibility does not exist in reverse."