The UK government’s automatic review of the
state pension age, linking it to future life expectancy will create
uncertainty for UK citizens as to when they will be eligible to
receive their state pension, according to investment services
provider Skandia.

Responding to UK Chancellor George Osborne’s budget, announced
on 21 March 2012,  Adrian Walker, Skandia’s pension expert,
said the automatic review of the state pension age would now make
it more difficult for people to plan how much they need to save
privately to achieve their desired level of retirement income at
the age they want to enjoy it.

Walker said: “The age is likely to increase over the years, and
the main message for younger people, if they want to enjoy a
meaningful retirement, is to build up their savings as early as
possible through tax wrappers such as ISAs and pensions so they
have an alternative income stream available well before they may
benefit from the state pension.”

John Lawson, head of pension policy at Standard Life, said:
“Last year we predicted that an increasing state pension age was
likely to be an ongoing trend in the years ahead. Now the
Chancellor has confirmed this is to be the case and we should brace
ourselves for having to work much longer in the future. Unless we
save a lot harder and are able to retire on our private pensions
when we want to, many of us will still be working well into our
seventies.”

Lawson added: “There are already two increases to the state
pension age scheduled for 2019 and 2026 [in the UK]. If after 2026
the state pension age increases in line with our changing life
expectancy, we could expect that someone who is currently 37 won’t
be able to start drawing their state pension until they are 70 and
someone who is 21 won’t receive it until they are 75.

This means that children born in 2012 are unlikely to get their
state pension until 80, if life expectancy at retirement rises in
line with last the 30 years.”

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Michelle Mitchell, charity director
general of Age UK, warned: “Life expectancy must not be the only
factor that is considered as the disparities in healthy life
expectancy across the country means that the poorest socio-economic
groups will be required to sacrifice proportionately more of their
retirement.”

In the UK budget the UK chancellor
announced plans to consult on issuing gilts or bonds with a life
longer than 50 years. However, this was not received favourably by
pensions experts.

Ros Altmann, director general of the
Saga Group, a company focused on the insurance needs of people over
the age of 50, said:“The Chancellor’s announcement of a
consultation on issuing 100-year gilts seems more of a gimmick than
a useful tool for pension funds to consider investing in,” she
said.

“One has to wonder why pension funds
would want to buy 100-year gilts at all, but especially not at
current yield levels.” UK government bonds are currently yielding
around 2%.

Joanne Segars, CEO of the National
Association of Pension Funds, said: “A 100-year bond would be too
long for most pension funds, and we don’t think that many would buy
them.

Pension funds are looking for 30, 40
and 50-year inflation index-linked debt, and would much rather the
government issue more of those.”

Altmann added: “It would more helpful
if the government were to issue longevity gilts, rather than
‘century’ bonds.”