Minimum State Pension: Government Forced to Make ‘Difficult Decisions’

One highly controversial subject that has millions united in shared concerns right now is the prospect of the state pension age (SPA) being reviewed and altered in the near future. While it is the kind a decision that may have minimal impact on some, others may find that their retirement plans in their entirety are put in harm’s way. Nevertheless, pensions minister Richard Harrington has stated that it will be entirely necessary for ‘difficult decisions’ to be made by the government, despite the way it may negatively impact millions.

Confederation of British Industry (CBI) director general John Cridland is currently carrying out a review of the SPA situation, primarily focusing on the way in which SPA will inevitably have to change in order to compensate for growing life expectancy.

When the 2011 Pensions Act was passed, it paved the way for the female SPA to be brought in line with the male age of 65 by the end of 2018, while the male SPA will be pushed back to 66 between 2018 and 2019.

Pensions minister Richard Harrington highlighted the importance of long-term sustainability, when it comes to overall state pension spending.

“Adair Turner [who led the Pension Commission] proposed that on average the government should spend 7.5% to 8% of GDP on pension benefits which is the state pension plus other things,” he said.

“This is something we have to make sustainable, at the moment state pension spending alone is £90 billion and comes to just 6% of GDP and everyone is fighting for money.”

Harrington also stated that he is aiming to ensure that the average UK retiree will enter their retirement with savings in the region of £250,000.  He based this figure on the average UK salary of approximately £27,000, along with average pension contributions and the assumption that most retirees would like to retire with around 2/3 their salary annually.

One of the biggest problems likely to arise with any changes in SPA is the way in which tens of thousands of UK workers who are already counting down the final years to their own retirement may suddenly find themselves required to work an extra year, or wait a further year to access their pension pots. This could prove particularly problematic for those who have already entered into schemes guaranteeing the sale of their home, have planned relocation or for any other reason may need to access their pension funds from the day they were initially promised.

Nevertheless, Harrington stated that transparency remained one of the most important priorities throughout the process and that those who may be affected will at least not be left in the dark.

“The Financial Conduct Authority is on board, it’s all part of this access that people need to know what is going on. I have a group of MPs together who are interested and this is it now for transparency,” he said.