State pension age ‘could hit 80’ as savers hit with crisis warning | Personal Finance | Finance

British workers are facing a stark warning that the long-term cost of the state pension system may force the retirement age as high as 80, as fresh analysis suggests the crisis could be far worse than previously feared. New modelling by consultancy firm Barnett Waddingham claims that official projections are underestimating the cost impact of people living longer, especially if the life expectancy gap between the poorest and wealthiest groups narrows.

That shift alone could add the equivalent of £8 billion per year to pension spending by the mid-2070s, compared to current government estimates. In response, actuaries say that maintaining state pension costs at today’s share of GDP could require deferring payments until age 80, far beyond the previously suggested age of 74.

“The OBR’s Fiscal Risks and Sustainability report shows the cost of state pension as a proportion of GDP doubling over the next 50 years,” said Jack Carmichael, senior consulting actuary at Barnett Waddingham.

“The modelling currently in use is too cautious and underplays the degree of longevity risk in the system.”

He added that using a more realistic model, which assumes poorer people live longer than currently projected, gives a truer picture of future spending demands.

“To keep the cost of the state pension at a similar proportion of GDP would then require a massive increase in the state pension age, potentially up to the dizzying heights of 80,” Carmichael warned.

The warning comes amid growing political and public concern over the sustainability of the state pension system. The pension age is already set to rise from 66 to 67 between 2026 and 2028, and then to 68 between 2044 and 2046.

But recent government-commissioned reviews have suggested those changes may not go far enough, or fast enough.

Earlier this month, the Treasury’s Office for Budget Responsibility (OBR) warned that the state pension triple lock, which guarantees annual increases in line with the highest of inflation, earnings, or 2.5%, could cost the government three times more than originally expected by 2030.

The Government has launched a new review to examine what factors should influence future decisions on the state pension age, led by Dr Suzy Morrissey.

The Government Actuary’s Department has also been asked to evaluate what proportion of adult life should reasonably be spent in retirement.

Despite these efforts, no final decisions are expected until the next Parliament. Ministers have said they want to give people enough time to plan for any changes.