Following France in raising pension age could be electoral liability in UK

Strikes have paralysed France in the last couple of days as a large portion of the nation, as anticipated, has expressed its displeasure with President Emmanuel Macron’s drive to raise the state pension age from 62 to 64 years of age.

Mr. Macron claims that the action is required because, without it, the state pension will become expensive due to the ageing population, saving the French government an initial €17.7 billion (£15.5 billion) annually.

According to the French president, raising the retirement age is preferable to either lowering the state pension or maintaining the status quo by either boosting taxes or expanding government borrowing.

There are likely to be repercussions in the UK where some have questioned whether the pension age might also need to increase.

The pension age was set at 65 until November 2018, since when it has gradually risen to the current 66, which it hit in October 2020. It is due to begin rising again from May 2026, again, on a gradual basis.

By the end of 2028 the state retirement age will be 67. It is then due to begin gradually rising again from 67 to 68 between 2044 and 2046.

By 2046, the state pension age in the UK will be 68.

Anyone who was born after April 6, 1978, or who will turn 45 this year, must wait until they become 68 in order to be eligible for the state pension under the new rules.

Expected state pension costs could reach £100 billion

It is important to note how far in the future that second change will occur, although some people worry that the Treasury will want to hasten the process.

The state pension will cost more than its current level of £100 billion per year in the coming years, according to a government assessment of the state pension age scheduled for publication in May of this year.

There would be a £10 billion savings even if the pension age was advanced by one year.

Ministers have already said they want to speed up the process so that the switch to 68 happens sooner rather than later — between 2037 and 2039 as opposed to 2044 and 2046.

Pension experts say the votes of “Generation X” and “Millennials” may be in jeopardy

Moving more quickly than that would be politically dangerous because it would alienate ‘Generation X’ voters — those who were born between 1965 and 1980 — who would be the first to be affected.

It would entail effectively ordering them to delay their retirement date and continue working longer than they had planned or to make do with any retirement savings they may have accumulated until they are eligible for the state pension – but with little time to accumulate the additional savings they may need.

The move’s potential to inflame ‘Millennial’ voters — those who were born between 1980 and 1995 — would be more combustible because many of them are already displeased with their failure to climb the housing ladder and the fact that they were the first generation to be forced to pay for college.

If the Conservatives want to avoid losing not only the upcoming general election but also the one that follows in roughly 2028 or 2029, they must do all in their power to keep this cohort on board.

Therefore, advancing the age at which the state pension increases to 68 would be risky.

According to Mel Stride, secretary of state for work and pensions, doing so would be “pretty hairy.”

A timeline to raise the state pension age once more to 69 or even 70 sometime in the second half of this century is more likely to be introduced by the administration.

Additionally, it has been suggested that ministers consider means testing the state pension, as is done, for instance, in Australia.

This, however, ignores the fact that the state pension is already in fact means tested.

‘Baby boomers’ are already disadvantaged

Many members of the now-retiring “Baby Boomer” generation — those who were born between 1945 and 1965 — are already seeing their state pensions taken back in income taxes as a result of the large pensions they have amassed.

More than half of individuals who already get a state pension pay at least 20% — and frequently 40% or even 45% — of it back in taxes.

Such a policy would also be tremendously unjust to individuals who are in or about to enter their last ten years of employment.

Their state pension will have played a significant role in their retirement planning, so losing it suddenly would not allow them enough time to build up additional funds.

Even worse, it can cause individuals to cease saving for retirement or spend down their existing assets in order to avoid losing out on the state pension.

This is why former minister Steve Webb, one of the most knowledgeable pensions advisers in the UK, has even called for means-testing of state pensions a “terrible idea.”

It would therefore need to be telegraphed years in advance if it were to be introduced.

That also holds true for any increase in the state pension age, as well as for accelerating the already-planned increase.

That also applies to any increase in the state pension age – or accelerating the current increase planned.

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