Liz Kendall has warned Britain faces a “tsunami of pensioner poverty” without major reform to the system as she launched a new pension commission.
Speaking in central London, the work and pensions secretary also announced a review of the state pension age, opening the door for it to be increased.
It comes as research by Age UK found that people looking to retire in 2050 are on course to receive £800 per year less than current pensioners while 2 million pensioners are already in poverty with the number expected to rise.
The government reviews the state pension age every six years. It is currently 66 but is already set to rise to 67 in 2028 and 68 by 2046.
However, earlier this year, Denmark became the first country to raise it to 70 for those retiring by 2040 in a move which raised speculation that other countries, including the UK, may follow.
Two of the UK’s leading economic think tanks – the Institute for Fiscal Studies (IFS) and the National Institute of Economic and Social Research (NIESR) – warned that while accelerating the rise of the pensions age is “not inevitable”, there were strong indications that the government will press ahead with it.
The announcement came after Ms Kendall failed to get parliamentary support for a cut in the welfare bill of £5bn a year, mostly from disability payments, following a major rebellion by Labour backbenchers.
Jonathan Cribb, deputy director of the IFS, told The Independent that not accelerating the rise of the state pension age “would add a further spending pressure” on the government.
He noted: “Increases in the state pension age are not terribly popular. But given that the last two reviews both recommended the increase being brought forward (by different amounts), we might be a bit surprised if there was a recommendation that it not be brought forward at all.
“I personally am going to look out for whether there is a pathway to eventually raising it to 69, even if that is quite a long way off.”
The NIESR’s deputy director, Stephen Millard, warned that the move would not bail out the government of its short-term problems.
He said: “Arguments around the state pension age and how quickly this is increased [should] revolve around long-run fiscal sustainability rather than the government’s current fiscal woes.
“They might decide to increase the state pension age faster than originally planned, and this would probably be a good thing from the point of view of long-run fiscal sustainability. But I don’t think it’s inevitable, and it wouldn’t help improve the short-run fiscal position anyway.”
The Department for Work and Pensions’ findings on people saving for their pension has come up with some stark results:
The analysis also found a 48 per cent gender gap in private pension wealth among people currently retiring, with a typical woman receiving just over £100 a week and a man receiving £200 from private pension income.
In her statement, Ms Kendall noted that by the 2070s, the number of pensioners is expected to have increased by over 50 per cent, whereas the working age population will have only grown by over 10 per cent.
She said that this makes “it even more imperative to help future pensioners put into a savings pot they can rely on in the future”.
Ms Kendall warned: “My big worry is, so many young people have not even got a hope in hell of getting on the housing ladder, they’re being absolutely killed by their rent, and if you are paying off your mortgage in retirement, or still renting in retirement, that is what is driving this sort of tsunami of pensioner poverty that is coming our way.”
The minister told reporters: “Put simply, unless we act, tomorrow’s pensioners will be poorer than today’s, because people who are saving aren’t saving enough for their retirement.
“And crucially, because almost half of the working age population isn’t saving anything for their retirement at all.”
The commission is expected to provide recommendations for how to boost retirement income in 2027. It will not look at the triple lock or be part of the state pension age review.
However, Ms Kendall warned that the cost of the triple lock guarantee on the state pension is £31bn a year.
The triple lock, which was introduced by David Cameron’s government in 2010, means that the state pension either rises by wage increases, 2.5 per cent or the highest rate of inflation, whichever is higher, to keep up with the cost of living.
Ms Kendall said she was “under no illusions” about how difficult it would be to map out plans for pensions for the coming decades amid cost of living pressures.
She conceded that “many workers are more concerned about putting food on the table and keeping a roof over their heads than saving for a retirement that seems a long, long way away, and many businesses face huge challenges in keeping profitable and flexible in an increasingly uncertain world”.
Damon Hopkins, of financial adviser Broadstone, said: “We would not be surprised to see an acceleration applied to the increase of the state pension age. The combination of an ageing population and the huge fiscal cost of the state pension would suggest that a change is inevitable.”
Welcoming the announcements, Paul Nowak, general secretary of the Trades Union Congress (TUC), said: “We now have a chance to build on that work by reaching a long-term consensus on extending auto-enrolment to those workers still missing out, and making sure that this system delivers the decent retirement incomes all workers need.”
Rain Newton-Smith, chief executive of the Confederation of British Industry (CBI), said: “The only route to higher living standards both in work and in retirement is through higher growth, productivity and better savings.”
