The Association of Consulting Actuaries (ACA) has endorsed a call to increase the State Pension Age to 66 from 2016, whilst at the same time recommending that any future increases should be linked to the life expectancy of those on lower incomes.
At the moment, it is the life expectancy of the population as a whole that is considered. This masks the fact that those on lower incomes typically have poorer life expectancy than wealthier individuals.
Those on lower incomes tend to be more reliant on the State Pension as well.
Another sensible suggestion made by the ACA is to phase in the increase to age 66. If the move is made on a single day, people could face a “birthday lottery”, where those born only a day earlier receive an additional year of retirement income.
They acknowledge that making the change in one go would be cheaper than phasing it in over time, but call for a gradual introduction of the higher State Pension Age, possibly over two years.
Those planning for retirement should be aware of these issues, even if the State Pension is not going to be their main source of income in later life. A higher State Pension Age could mean that individuals need to consider funding a temporary shortfall, of a year or longer, between their intended retirement date and their State Pension Age.
