The state pension age for men is to be raised to 66 as early as 2016, and the government is to consider bringing forward a rise to age 68 to "be fair to the next generation of taxpayers".
The move would represent a eight-year cut in the time frame for raising the state pension age: under Labour the intention was to raise it to age 66 by 2024, and to 68 by 2046.
Men aged 59 now will be the first affected. Women are already experiencing a gradual raising of their state pension age from 60 to 65 by 2020. Although the government has not yet clarified its plans for raising women's state pension age to 66, if it then increases by another year, women now aged 54 will be the first of their sex to draw their basic state pension at 66.
The government also announced plans to consult on axing the default retirement age of 65 – the minimum age at which employers can force staff to take retirement – and on the automatic enrolment of employees into workplace pension schemes.
It re-iterrated its intention to restore the link between rises in the state pension and earnings from 2011, as announced in the budget on Tuesday. However, the link will be to the consumer price index rather than the retail price index, currently the lower of the two measures of inflation. The Conservatives broke the link between the state pension and RPI back in 1980 under the then prime minister Margaret Thatcher.
In a speech this morning, work and pensions secretary Ian Duncan Smith and pensions minister Steve Webb said: "Britain used to have a pensions system to be proud of, but due to years of neglect and inaction we are left with fewer people saving into a pension every year and the value of the state pension has been eroded, leaving millions in poverty. We must live up to our responsibility to reinvigorate the pension landscape.
"People are living longer and healthier lives than ever, and the last thing we want is to lose their talent and enthusiasm from the workplace due to an arbitrary age limit. We also need to recognise that to meet the challenge of providing an affordable, stable pensions system in a society with ever increasing life expectancy, people will need to work longer.
"And we will reward their longer working life by making sure that when they do retire, their pension is worth getting. We are taking radical action to restore the earnings link with the triple guarantee, ensuring our pensioners get the best possible deal.
"Everyone needs to take responsibility for achieving the income in retirement they aspire to. We will support them in doing so by giving people the chance to save into a workplace pension and the freedom to work beyond retirement age if they want to."
Pensions minister Steve Webb added: "I've worked all my life to get a fairer deal for pensioners. Up to 10 million people are not saving enough and we cannot allow this situation to continue.
"Our plans to reinvigorate pension saving will be underpinned by automatic enrolment into workplace pensions from 2012. But we need to make sure we get the details right, which is why we're announcing a thorough and speedy review, to make sure that it pays to save."
Laith Khalaf, pensions analyst for independent financial adviser Hargreaves Lansdown, said the move was driven by the cost of providing pensions for a rapidly ageing population, and added that the review could consider raising the state pension age to 70. "Compared to today, the number of people over 65 will be half as many again in 2030, and will have doubled by 2060, according to the DWP. The government could save £13 billion for each year that it increases the state pension age."
Unions reacted with anger to the news, accusing the government of showing its "class bias" just weeks after gaining power. Paul Kenny, general secretary of the GMB, said: "The government knows that manual workers in the industrial regions of the UK do not enjoy anything like the same life expectancy as professionals or other classes or employees.
"To force someone who has done a lifetime of toil on building sites, farms or in factories to work until they are 66 is completely unacceptable. What on earth are the Liberals doing in this coalition?"
Age UK, the charity for older people which has been campaigning for abolition of the default retirement age, expressed concern about the speed at which the government wanted to introduce the increase.
Michelle Mitchell, Age UK's Charity Director, said: "The coalition must not make any rash decisions about the future of our pensions system. Before rushing through any increase to state pension age, the government must first reduce the health inequalities between rich and poor, and create a much fairer job market for older people. Failure to do so will force millions of older people, many of them poorer and with lower life expectancies, to work for longer or face another year trapped in unemployed limbo.
"Any review into bringing forward the state pension age increase must take into account the full impact on these workers. Clearly there are huge challenges ahead for the new government but now is the time to renew the fight against pensioner poverty and commit to eradicating it once and for all."
The National Pensioners Convention also criticised the government's plans to raise the state pension retirement age, describing it as an attack on the poorest members of society.
The group said the decision ignored important information that showed that life expectancy is linked to affluence.
Ministers were accused of failing to spell out the quality of jobs that would be on offer to older workers, the loss of pensioner volunteers to society as well as the general availability of work.
General secretary Dot Gibson said: "There can be no doubt that the wealthier you are, the longer you live, so raising the retirement age is a direct attack on the very poorest in our society.
"There is a myth that we are all living healthier lives for longer and very little evidence that there are sufficient jobs around for everyone to keep working. This policy isn't about choice, it's about cutting costs and making the poorest pay the highest price. We must establish the right to a decent period of retirement otherwise we will soon see people working till they drop."
The NPC also criticised the intention to link state pension to CPI rather than RPI, saying it "will take decades before it has any real impact on tackling pensioner poverty".
Brendan Barber, general secretary of the TUC, said: "While we welcome the decision to end the arbitrary retirement age, raising the state pension age over this short timescale is clearly driven by a desire to cut spending rather than a planned approach to introducing more flexible retirement.
"Raising the state pension age will hit the less well-off far more than the rich. Sixty-five-year-old men in Kensington and Chelsea can expect to live a further 23 years, while those in Glasgow only 14 years.
"A majority of 64-year-old men are already out of the labour market. Raising the state pension age will not help any of them stay in work. It will simply turn a generation of 65-year-olds from pensioners into the unemployed.
"The government must also spell out what will happen to women, as only increasing the pension age for men is almost certainly a breach of sex discrimination law."
However, Ian Naismith, head of pensions market development for Scottish Widows, said bringing forward the increase would be a positive move, but added that people needed to prepare for the change by saving more.
"We live in an ageing society and we will all have to work longer, a need which has only been increased by the economic climate of recent years. Raising the state pension age will give added encouragement to plan for a longer working life.
"This has also been reinforced by the announcement that the default retirement age of 65 will be scrapped, which is a clear message that the government is acknowledging that everyone should be able to work for as long as they are able. Although this gives employees the freedom to choose when to retire, employers may need to consider late retirement provisions under pension schemes, with more staff likely to work beyond scheme normal retirement ages.
Duncan Smith's announcement comes as former Labour Cabinet minister John Hutton embarks on a review of public sector pensions. As the head of the Independent Pensions Commission, he has been tasked with identifying immediate savings by September and full-scale reforms in time for next year's budget.
The new Office of Budget Responsibility has suggested the public sector pension bill could more than double to £9bn a year by 2015.
Article from The Guardian