Rachel Reeves faces ‘huge’ state pension age decision – saves £10bn with just one change.uk
Chancellor Rachel Reeves has left nation’s finances on a knife edge and the state pension age may have to rise earlier as a result.
Chancellor Rachel Reeves can save billions by paying pensions from a later date (Image: Getty)
That’s the stark conclusion of pensions and finance expert Rachel Vahey, after poring over the brutal numbers in yesterday’s Spring Statement.
Reeves’s speech confirmed our worst fears. Despite announcing fresh spending cuts, the Chancellor is still struggling to balance the books.
Reeves is relying on some heroic GDP growth projections to make her sums add up. That leaves her with a brutal choice: raise taxes further or slash spending. Or both.
This morning, I outlined 10 taxes Reeves could hike in her autumn Budget. But she has another option, one that would enrage millions. Pushing up the state pension age sooner than planned.
Vahey, head of public policy at AJ Bell, said the state pension age is already set to rise from 66 to 67 between 2026 and 2028, in a move that should the Treasury £10.5billion a year by 2030.
That’s because 820,000 people aged 66 would be forced to wait an extra year before claiming their pension.
That won’t be enough though.
The state pension is currently scheduled to rise yet again to 68, between 2044 and 2046. However, that timeline isn’t set in stone.
The Cridland report has already suggested accelerating that to 2037. That would potentially bring forward another £10.5billion saving, money Reeves desperately needs.
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The Office for Budget Responsibility (OBR) predicts government spending on pensioners will hit £182billion by 2029/30.
That’s a rise of around 20% from today, driven by the ageing population and state pension triple lock, Vahey warned.
At that point, it will eat up almost half the entire welfare budget. “If the government is looking to cut costs, pensioner spending could move into the Treasury’s crosshairs in the next few years,” Vahey said.
Vahey said Reeves may be tempted to “get more bang for her buck by bringing forward the planned increase to 68”.
Pushing up the state pension age isn’t a simple fix, she admitted. “Any changes will be hotly contested.”
The state pension rises 4.1% next month under the triple lock, lifting the new state pension ever closer to the £12,570 personal allowance.
It could overtake it in a couple of years. “At that point, the government will have a huge decision to make,” Vahey said.
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Labour pledged to protect the triple lock in last year’s election manifesto, but Vahey now questions how long that promise can last.
“Crunch time is fast approaching when the government will finally be forced to address the question of how much the state pension should really offer, at what age, and how it can increase payments sustainably each year.”
When the crunch comes, Reeves faces a nightmare choice. Either the state pension age must rise faster than planned, or the triple lock must go, or both.
Life expectancy growth may have slowed since the pandemic but with the economy stalling that may not help.
This is not all down to Labour, of course. The Tories left the UK finances in a mess but with Reeves making everything worse, tough decisions are coming. We may not like the answers.
