6 March was a historic day. For the first time since the modern state pension system was introduced in 1940, people received the payment at an age older than 65.
Despite the gradual transition, for many this will be extremely painful as they consider working longer or spending less money in retirement.
Based on the current flat-rate state pension amount, those forced to wait an extra three months will have missed out on just over £2,000 in income. A full year of lost state pension will cost £8,546.20 in today’s prices.
For most people, including advised clients, the state pension represents a significant level of guaranteed income. Having to wait a year or more extra to receive it – younger clients might not receive the state pension until age 68 – needs to be factored into retirement plans.
Increases to the state pension age were always going to be deeply unpopular, and Labour has already set itself up in opposition to rises beyond age 66. But from the government’s point of view they are deemed necessary to stop social security spending spiralling out of control.
To give a bit of context, the Office for Budget Responsibility estimates spending on state pensions topped £96 billion in 2018/19.
A quick look at how life expectancy has shifted over the past 40 years or so tells a story. Male life expectancy at birth has risen from 71 in 1980 to 79 today, while male life expectancy at 65 has increased from 13 years in 1980 to 18.5 years today.
Women can also expect to live even longer in retirement, with life expectancy at birth of around 83. Those who reach age 65 can expect to live another 21 years in retirement.
Anyone wanting to retire at age 65 needs to consider how they will fund their lifestyle as the state pension age recedes. For many that will involve working longer, either full time if they are able to or part time to supplement their retirement income.
Anyone who does not want to do this needs to either save more money today or accept a much lower income in retirement.
A quick dip into the annals of state pension history unveils some fascinating facts. While the system as we know it was created just before the Second World War, the first UK state pension was paid in 1909 under Herbert Asquith’s Liberal government.
Even at birth the state pension was not simple. A sum of five shillings a week (around 25p) was paid to those aged 70 or over, although only where their income was £21 a year or less. This reduced to nothing for those earning £31 a year or more. A higher payment of 7/6 (about 63p) was made where a man was married.
At this point in history just one in four people were expected to reach their 70th birthday, with life expectancy for those who made it to 70 estimated at nine years.
While many will feel hard done by under the current system, things could certainly be a lot worse.
Tom Selby is senior analyst at AJ Bell