State Pension age review launched and minimum workplace pension contributions slammed

More bad news for workers and their pension plans.

Workers have been dealt more bad news about their pensions plans.

Yesterday the Government announced a State Pension age review, which could see the way the State Pension age is calculated altered.

And a new study from Royal London claims workplace pensions aren’t helping people to save enough, meaning some will have to work until they are 81 to enjoy a decent standard of living.

The State Pension age review

The Government has launched a review into the State Pension age headed by John Cridland CBE, the former head of the Low Pay Commission, who will assess whether the current system is fit for the long term.

Those under the age of 55 could be impacted by the consultation, which will consider what the retirement age should be from April 2028. The current state pension age is 65 for men and 60 women but is due to rise to 66 for both by 2020, and then to 67 for both between 2026 and 2028.

The review will consider a range of things including whether the current system of a universal State Pension age that rises in line with life expectancy is the best approach in the future.

Experts predict this year-long review will look at ending the universal State Pension age and instead base it on different groups of workers and even regional living standards. This could mean manual workers in some areas might be able to claim their pensions earlier than those that say work in an office.

However, Tom McPhail, Head of Retirement Policy at investment company Hargreaves Lansdown, said the review could pave the way for faster State Pension age rises and create uncertainty: “We fully expect State Pension ages to go up faster than currently planned, and those joining the workforce today are likely to find themselves waiting till their mid-70s to get a pay out from the state system.

“This is simply a function of the big jumps we continue to see in life expectancy, which the State Pension can’t hope to support without costs spiralling out of control. Whatever decisions they make, the Government needs to make sure they communicate them very, very clearly so individuals can plan their retirement savings with some certainty about what they will get from the state, and when they will get it.’

Workers still aren’t saving enough

Another blow for workers saving into a pension today is that they are not saving enough and will have to work much longer to achieve a decent retirement income.

In a paper called The Death of Retirement, Royal London looks at the workplace pensions into which millions of people are currently being enrolled. It argues that a decent pension will be unattainable based on current minimum contribution levels.

The figures show someone on the national average wage (£27,645) who starts saving for their pension at 22 and pays just the statutory minimum level required by the Government (currently 8% of qualifying earnings) would need to work until they were 77 to get the sort of ‘Gold Standard’ pension enjoyed by their parents’ generation.

The ‘Gold standard’ is defined as a combined private and state pension that amounts to two thirds of pre-retirement income, which is protected from inflation and leaves a 50% pension for a surviving spouse.

To achieve a so-called ‘Silver Standard’ the combined pension would be able to replace half of pre-retirement income, be inflation proof and leave a 50% pension for a surviving spouse, and the same worker would need to work until they were 71.

However, how long you have to work depends on how much you are earning, and the report warns that workers in high wage areas will have to build up much more of a private pension to maintain their living standards.

This means a worker in Westminster earning an average £42,798 would need to work until they were 81 for a ‘Gold Standard' pension or 76 for a ‘Silver Standard’ pension, compared to a worker in Boston, Lincolnshire earning £20,376 who will have to work until they are 73 for the ‘Gold Standard’ or 67 for the 'Silver Standard'.

The table below provides a snapshot of when workers in different areas of the UK will be able to retire based on median wages.

Area (with median wage)

Age when ‘Gold Standard’ achieved

Age when ‘Silver Standard’ achieved

Westminster, London (£42,798)



Tonbridge and Malling, Kent (£34,996)



UK Average (£27,645)



Sedgemoor, Somers (£25,000)



Boston (£20,376)



The report also reveals what the impact of enrolling onto a workplace pension will be for those starting later in life. Someone aged 35 would have to work until 79 for a ‘Gold standard’ and those who start saving at 45 they need to work until 81.

In conclusion the report finds that the goal of 67% of pre-retirement income is unfeasible for those that only put in the statutory minimum level of 8%, which only comes into force in 2019 and suggest contributions of at least 19.8% are required to reach the 'Gold Standard'.

It calls on the Government to do more to ensure individuals save more.

Want to put more money away for your retirement? Compare stocks & shares ISAs and self-invested personal pensions

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