What the Autumn Statement means for pensioners


George Osborne

The big news in the Autumn Statement about pensions had already been leaked, so that when George Osborne outlined massive sweeping changes to the state pension age, there was silence in the chamber.

However, alongside the headlines, there were a number of other changes that will have a real impact on pensioners.

Increase in the pension

Pensioners have been protected from many of the government's austerity measures so far, so it will come as a major relief to many that it looks like those protections will remain in place for now. While all other benefit recipients see welfare increases creep up marginally in April, pensions will go up in line with inflation - adding £2.95 a week.

Help for worst off

There was also good news for those pensioners who currently do not qualify for the state second pension. A new rule will enable them to make voluntary National Insurance Contributions to build up their entitlement to the second state pension in retirement. Assuming they can afford this, it could dramatically increase their income in retirement.

For future pensioners

For those retiring in years to come, the news was less positive, because people will have to wait much longer to receive their pension. We already knew that state pension age will rise to 66 in 2020 and 67 in 2028. This will not change. However, after this date, the state pension age was set to rise to 69 over the following two decades, but Osborne has brought this forward by establishing a rule to ensure that people spend no more than a third of their life drawing a state pension.

This is roughly how long people spend drawing their pension now, so it will rise in line with life expectancy – reviewed every five years. He said: "This is one of those difficult decisions governments have to take if they are serious about controlling the public finances."

Using current projections it means that an increase to 69 is expected in the mid 2040s, which could affect those in their late 30s, and an increase to 70 is likely in the 2050s – affecting people in their 20s. This is expected to save the government £400 billion in the next 50 years.

What can you do?

The reaction from many has been incredulity - and TUC General Secretary Frances O'Grady reflected the views of many people when she said: "There has been no new evidence to show that people are living any longer since the last time the Chancellor increased the state pension age, yet today's young workers are being told they must work until they drop."

However, other experts argue that in reality this was always on the cards. Tom McPhail, head of pensions research at Hargreaves Lansdown points out: "In reality, many in work today are already unlikely to be able to afford to retire until their 70s, irrespective of when their state pension falls due." He says that this announcement clearly shows that if you want be able to control your retirement age, you need to take control of your pension savings too.

For anyone affected by the changes, this provides a real incentive to take a long, hard look at the provisions you are making for your retirement. Ray Chinn, LV='s Head of Pensions and Investments said: "Our research found that the average 50 year old would like to retire at age 61, but expects to retire at 65. For future generations to be able to do this they will need to have sufficient private provisions, making it even more important that they engage with the retirement saving and planning process earlier."