How will the retirement age affect you?

Shadow Chancellor George Osborne has proposed to increase the state retirement age for both men and women from 2016. This is a decade earlier than the plans set out by Labour. The upshot of this is that about two and a half million people, currently aged between 48 and 57, will find themselves working longer than they had planned.

Although the retirement age for men will only rise by one year, from 65 to 66, women will find themselves harder hit, as the minimum age for claiming a state pension will go up from 60 to 63.

Aside from the obvious desire to make people work for longer, thereby lowering the financial burden on the government, there is also the knock on effect of increased parity between the retirement ages of men and women.

Mr Osborne believes there is a potential saving in excess of £13 billion a year to be made by bringing forward the rise in retirement age by ten years, from the Labour target of 2026 to their proposed 2016. The move itself is expected to save the country somewhere in excess of £130 billion.

As risky as this policy might be when it comes to alienating older voters, Mr Osborne believes that the move is integral in demonstrating the Tory’s steadfast approach to cutting public debt. Present forecasts suggest that Britain’s public debt is set to top £1 trillion over the next few years.

There are other whispered plans to tackle this ballooning figure, like cutting the benefits paid to middle class families, child benefit and Family Allowance. Who knows where the next casualties will come from in this ongoing struggle to drive down public-sector spending?

Lord Turner, the former City financier, ex-advisor to Blair’s Labour Government and current head of the Financial Services Authority, has reportedly put forward a proposal which would see the retirement age rise to 70 by 2030. In a perpetually aging population, it is a natural assumption that retirement age should also go up. However, with people’s personal debt a mounting concern, the increase in minimum age of retirement might not actually go far enough in addressing their financial anxieties. As it stands, the retirement age is primarily a tool used by employers to force their employees out of the job. With the average person’s debt an ever growing problem, the solution for them would actually be to allow them to work on longer.

Essentially, Britain’s ongoing battle with bad debt is being fought on two fronts. On one hand, the government’s spending on state pensions is set to soar. Current projections suggest that 4.4% of our GDP will be spent on state pensions in 2012, a figure which will rise to 6.2% by 2032. The proposed hike in the pension age would reduce this spending to 5.8%. However, the head of public policy for Age Concern and Help the Aged, Andrew Harrop, is quick to warn of the potential pitfalls of increasing the state pension age on a more personal, individual level. So, for those people who have already calculated their state pension into their financial projections, the increased retirement age could have serious implications for their personal finance. Likewise, for those people that are desperate to keep working and clear their debt now, the 2010 review already comes too late to save them from enforced retirement.