The UK state pension system faces significant challenges given the country’s ageing population, but at the same time it is crucial for retirement finances: state pensions make up on average almost half of income for recently retired households. Reforms coming into force in 2010 and 2016 have increased universality, and most future pensioners will receive a full (flat rate) state pension. Policy-makers seeking to limit the cost of the system have two obvious options: raising the state pension age or limiting increases in the value of the pension. The current indexation method known as the ‘triple lock’ increases the value of the state pension over time but to an uncertain degree and only in times of macroeconomic turmoil. Among other reasons, differences in life expectancy mean raising the state pension age disproportionately affects poorer people. This is in contrast to limiting indexation which affects those on higher incomes more.
Authors
Jonathan Cribb
Jonathan is a Deputy Director and Head of Retirement, Savings and Ageing, focusing on pensions, savings and later-life economic activity.
Carl Emmerson
Carl, a Deputy Director, is an editor of the IFS Green Budget, an expert on the UK pension system and sits on the Social Security Advisory Committee.
Heidi Karjalainen
Heidi is a Senior Research Economist in the Retirement, Saving & Ageing sector. Her current research is on pensions and saving for retirement.
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