Today’s children will have to wait until well into their 70s and even their 80s before they pick up the new combined state pension. With increases in life expectancy, the state pension age will gradually increase, meaning that a baby born this year will most likely be 80 years old before they their reach state pension age.
The state pension reforms announced today (January 14) are a positive step, creating a simpler and fairer system for future generations of retirees. And the level of the new combined state pension (£144) is much higher than the state pension currently available today:
- Current maximum basic state pension (2012/13) = £107.45 p.w. (source: Gov.uk)
- Basic state pension maximum from April 2013 (2013/14) £110.15 p.w. (source: Autumn Statement)
- Current total average state pension (Basic State Pension and S2P/SERPS combined) for all single pensioners = £124 p.w. (source: DWP Pensioners' Income Series page 39 http://research.dwp.gov.uk/asd/asd6/2010_11/pi_series_1011.pdf
- Current total average state pension (Basic State Pension and S2P/SERPS combined) for newly retired single pensioners = £119 p.w. (source: DWP Pensioners' Income Series page 39 http://research.dwp.gov.uk/asd/asd6/2010_11/pi_series_1011.pdf
However, to pay for this pension increase all workers will have to work for much longer before they pick up their state pension, and some workers may have to pay more national insurance contributions.
The Pensions Minister, Steve Webb has confirmed that the state pension age would rise in line with life expectancy: http://www.telegraph.co.uk
Aviva has reviewed the numbers, based on changes in life expectancy since the year 2000 (source: Office for National Statistics). This official data shows that life expectancy for men at age 65 is improving at a rate of 1 year every 3.92 years. For example, the average 65-year-old British man in 2010 could have been expected to live another 18 years until age 83. By 2014, a man reaching 65 will live for another 19 years.
Although women's life expectancy is not improving as quickly as men's, women are starting from a higher base, with the average 65-year-old British woman in 2010 expected to live another 20.6 years - well into their 86th year. Nevertheless, women's life expectancy at age 65 is still improving at a rate of 1 year every 5.2 years.
As the state pension age for men and women is planned to equalise at age 66 in 2020, life expectancy data also has to be blended between men and women, giving an average life expectancy improvement at age 65 of 1 year every 4.55 years.
Assuming the state pension age increases by 1 year every 5 years after the current planned increase to age 67 in 2028, the following table sets out state pension age depending on your age today (2013).
What age will you pick up your state pension?
| Age today | State pension age (assuming life expectancy increases at the same pace as it has since 2000) |
| 60 and over | 65 (or lower for some women retiring before 2018) |
| 53 to 59 | 66 |
| 49 to 52 | 67 |
| 45 to 48 | 68 |
| 41 to 44 | 69 |
| 37 to 40 | 70 |
| 33 to 36 | 71 |
| 29 to 32 | 72 |
| 25 to 28 | 73 |
| 21 to 24 | 74 |
| 17 to 20 | 75 |
| 13 to 16 | 76 |
| 9 to 12 | 77 |
| 5 to 8 | 78 |
| 1 to 4 | 79 |
| Under a year old | 80 |
Most of those who want to retire earlier or plan to gradually wind down from work into retirement will have to save in their own pension.
Current pensioner data:
DWP Pensioners' income series (page 25) shows that about half of the income of single pensioners is made up of state benefits, including basic state pension (BSP), state second pension (S2P) and state earnings related pension (SERPS).
http://research.dwp.gov.uk/asd/asd6/2010_11/pi_series_1011.pdf
Aviva’s recommendations:
With the start of automatic enrolment in October 2012, workers have already begun to be enrolled into good quality pension schemes - Aviva recommends:
- Joining an employer's pension scheme to pick up an employer contribution of 3% or more. The employer contribution is worth at least £600 a year for someone on average earnings. To get this money from an employer, employees have to pay in 5% of their pay, giving a total pension contribution of 8% of pay. This should be seen as the bare minimum and employees should aim to build on this foundation level.
- Employees should aim to save around 15% of their income, between employee and employer contributions, throughout their working life to achieve a final income of half of their pay at state pension age, including state pension. Those who start saving in their 30s or older will have to save at a higher rate.
- Employees should save around 20% of income to get two-thirds of their final pay at state pension age, including state pension. Again, those who start saving later will have to save more than this.
John Lawson, Aviva's Head of Policy for Corporate Benefits said: "While the new higher state pension means many people will end up with more cash in their pocket when they reach retirement, the price will be a higher state pension age. And those babies born this year are likely to have a long working life, picking up their state pension at around their 80th birthday.
“The message from the Government is clear - 'this is what we are going to provide for you and after that you are on your own and must take responsibility'. It’s essential therefore that people take control of their own financial destiny as early as possible, and start by joining their employer's pension scheme, and then by ensuring they save as much as they can afford.”
Media contact: Diane Mangan 07800 691714 diane.mangan@aviva.co.uk