Millions in their 50s could pay £10K extra in taxes and contributions when state pension age goes up to 68

The stage pension age for retirement could be increased to 68 earlier than planned, in a ‘big bazooka’ bid to raise billions for the Treasury, the Work and Pensions Secretary Mel Striderecently admitted. The move to increase it earlier than originally expected is being considered to help remedy the dire state of the country’s finances.

Currently the state pension age is 66 for men and women, and will rise to 67 by 2028. The Government has previously said it will then go up again to 68 by 2039 but plans have been touted for some time that this would be brought forward, and Rishi Sunak seems to be inclined to go ahead with the idea, as per the Independent.

2030s

It is thought that the date will now be somewhere in the mid-2030s, with ministers wanting to leave a gap of at least a decade between legislating for the policy and it coming into action, reported The Telegraph.

The report went on to state that simply by raising the pension age by one year could raise £9 billion for the Treasury, with a saving of £8 billion in pension payments and an additional income of £1.3 billion taken in taxes on earnings.

The move would be particularly disruptive for millions of people in their 50s, who have to wait a year longer than expected before receiving their pension, and it could cost them £10,000s in extra taxes and contributions, as per The Mirror.

£100k in extra savings

Whilst the change in retirement age has negative implications for many, it is worth considering that the extra year of pension contributions can have a disproportionately positive effect on the size of your pension pot.

A report in This is Money recently noted that the last few years before you retire are some of them most significant in terms of determining the size of your pension pot as compound interest takes effect:

The report looked at the consequences of retiring at different ages for someone who started working at 22 on a salary of £23,000, saw annual salary growth of 3.5 per cent and investment growth of 5 per cent, and contributed the auto enrolment minimum into a pension.

You could build a pot of £203,000 by 60, but this would rise to £263,000 at 65 and £304,000 at 68.

Whilst the extra year will boost pension pots for many, working an extra year is of course not ideal for most people and so there could be a political cost for the Conservative party moving forward.

Sources used:

- The Independent 'State pension age could rise to 68 earlier than planned, report claims'

- The Telegraph 'State pension age set to rise to 68 in Treasury’s ‘big bazooka’ cash grab'

- The Mirror 'State pension age could rise to 68 earlier costing millions in their 50s £10,000'

- This is Money 'Delaying retirement from 60 to 68 could add an extra £100,000 to your savings... so when will YOU retire? Eight tips to help you decide'