The State Pension Age (SPA) may need to rise to 74 by 2069 if the government wishes to retain the triple lock guarantee, according to a report by the Institute for Fiscal Studies (IFS). Should this happen, people in their 20s and 30s today may not see a State Pension until they're well into their 70s. In the wake of these projections, experts suggest that if the triple lock continues in its current state, then spending could spiral out of control and render the State Pension unsustainable altogether.
An ageing population, coupled with volatile inflation and the triple lock promise, has seen state pension spending soar. In 2024/2025, the government spent around 5% of GDP (or £138 billion) on state pensions; this is around 35% higher than 50 years ago and approximately 15% higher than in 2010/2011. According to the Office for Budgetary Responsibility (OBR), state pension costs will rise to 7.7% of the country's GDP by the early 2070s, which equates to an increase of around 50% under current projections.
Some experts project an even more dire outcome. The Adam Smith Institute, a neo-liberal think tank, projects that on its current trajectory, the State Pension will reach the point of fiscal unsustainability by 2035. This is defined as the point when the government will spend more on welfare payouts, the largest of which is the State Pension, than it will receive in National Insurance contributions from the existing current population.
Further estimates suggest that by 2040, there will be 22.7 million people claiming benefits, including the State Pension, but only 34 million people (aged between 16 and 65) to fund these benefits. Over the longer term, the OBR's projections show that the pensioner population is likely to grow twice as fast as the working population up until 2074, partly due to increased life expectancy rising from around 89 to 94 years.
As such, experts from leading research institutes, like the IFS, are urging the government to consider reforms that provide a secure and stable State Pension. Below, we explore some of the potential reforms being put forward by experts.
How will the government ensure the State Pension remains sustainable
There are several steps the government could choose to take to ensure the State Pension remains sustainable moving forward. These measures include increasing the state pension age, reforming the triple lock, and means-testing the State Pension. We've looked at each of these in turn below.
Reforming the triple lock by adopting the "smoothed earnings link"
The triple lock ensures that the State Pension increases at the start of each tax year, either by average wage growth, the CPI rate of inflation, or 2.5%, whichever is higher. You can take a look at our article explaining how the triple lock works if you want to find out more.
The projection recommending increasing the State Pension Age to 74 implies that the triple lock remains in place. However, experts suggest there is a case for its reform. The OBR's estimates suggest that State Pension spending will rise to 7.7% of GDP by the early 2070s, 1.6% of GDP higher than if the State Pension had simply increased with earnings instead. But this isn't the worst-case scenario. A prolonged period of more volatile inflation (similar to what we've seen over the last decade) could see State Pension spending soar to 9.1% of the country's GDP by the early 2070s.
The triple lock has cost the government three times more than initial expectations since it was first implemented in 2010. The OBR states this is largely because the period since 2012 has seen volatile inflation and lower earnings growth when compared to the two decades before the triple lock's implementation. In practice, this means that increasing the State Pension based on the triple lock, as opposed to earnings, will add an extra £15.5bn annually to state pension spending by 2029/2030. This is roughly three times higher than the OBR's original £5.2bn estimates. The OBR states that an ageing population, coupled with the triple lock, will put significant upward pressure on state pension spending.
Experts from the Adam Smith Institute and the IFS have suggested reforming the triple lock by moving to the "smoothed earnings link" model instead. The IFS suggests that the government should decide on the level of the State Pension relative to average earnings and work to maintain it over the long term.
For example, the current State Pension amounts to roughly 30% of full-time median earnings. If the government decides to keep it at this level, it would increase it in line with earnings each year to maintain this proportion. However, even under this model, the IFS recommends that the State Pension is protected against inflation, meaning that if average earnings growth falls below the rate of inflation, then the State Pension is tied to inflation temporarily.
This model provides the government with far more certainty when it comes to state pension spending projections. The existing triple lock could see the value of the State Pension rise to 31% to 37% of median earnings by 2050; this would cost anywhere between an additional £5 billion to £40 billion a year more to fund as compared to earnings indexation.
So, to sum up, experts believe the triple lock is unsustainable in the long term and there are suggestions that the government should move to a smoothed earnings link, which would mean:
- The government decides on the level of the State Pension relative to average earnings (i.e. 30% which is what it is currently)
- The government increases the State Pension in line with earnings each year to ensure this proportion is maintained
- When average earnings growth falls below inflation, the government may tie the State Pension wage to inflation temporarily
- Pensioners still have a pension pegged to earnings, but the government also has a lot more certainty when it comes to long-term state pension spending projections
Increasing the state pension age
There are already planned increases to the State Pension Age (SPA), so this policy is already in place. The State Pension Age is currently 66 and is due to go up to 67 by March 2028 and then again to 68 by April 2046. The OBR estimates that increasing the State Pension Age to 67 in the late 20s will reduce state pension spending by around £10 billion by the end of the decade.
However, experts suggest the State Pension Age will need to rise further to ensure it remains sustainable. If the government wants to keep the triple lock intact and keep public spending on the State Pension below 6%, then it would need to raise the SPA to 74 by 2069, according to a report by the IFS. This effectively means that people in their 20s and 30s may only be eligible for the State Pension when they're well into their 70s.
The IFS is quick to point out, however, that an increase in the SPA would be unpopular. When individuals were polled about how they thought the State Pension should be funded, "most had negative reactions" to funding the State Pension by increasing the age at which it can be accessed. When pushed, those surveyed said they'd prefer higher taxes over a higher State Pension Age, with many believing the existing state pension age is already too high.
In general, the IFS steered clear of actually recommending a specific State Pension Age target despite quoting projections. Instead, the report stated: "Retaining the triple lock while raising the state pension age would hit poorer people more because the loss of a year of state pension income is more important for those with lower life expectancy (which poorer people tend to have), as they spend fewer years above the state pension age."
Instead of recommending a specific State Pension Age, the IFS recommended that the government should consider:
- Increasing the State Pension Age only when longevity rises, but not by the whole increase in longevity
- Increasing confidence, understanding and transparency by writing to people around their 50th birthday, stating what their pension age might be and fully guaranteeing this pension age 10 years before they reach it
- Enhancing universal credit for those in the run-up to the State Pension Age, particularly as it increases over time
- Making housing benefit more generous for the growing population of pensioners living in rented accommodation
While the IFS recommends increasing the SPA in line with longevity, the OBR points out that each single-year increase in the SPA reduces state pension spending by around 0.3% of the GDP.
Means-testing the State Pension
Means-testing the State Pension is another possible route the government may choose to take to tackle this crisis in the long term. However, experts are divided on whether this will be an effective measure.
Experts from the Adam Smith Institute suggest that the State Pension is a universal benefit, whereas most other benefits are means-tested. They suggested the State Pension should only be offered to pensioners with assets less than £1,000,000. Alternatively, they recommended means-testing those in the higher rate tax band. However, given the public outcry over means-testing another previously universal pensioner benefit - the Winter Fuel Allowance - it's highly unlikely this will be a popular move for any government.
Experts at the IFS disagree altogether and recommend the government doesn't means-test the State Pension. They urge the government to guarantee the state pension will never be means-tested. This is because means-testing the State Pension will discourage people from saving for their future, as they may wish to stay below whatever the threshold for the State Pension is. Over the long term, this could undermine pension auto-enrollment uptake and have the opposite effect by more people having to rely on government benefits instead.
In addition, the IFS points out, the State Pension is an integral part of most pensioners' incomes in the UK. For low-income pensioners, the State Pension makes up an average of 75% of their income. However, even for the richest fifth of pensioners, the State Pension makes up around 23% of their total income.
Will the State Pension exist when I retire?
The State Pension poses an enormous spending challenge for governments in the long term. That said, it's unlikely it'll disappear completely due to the political implications of removing it as a benefit. As such, the State Pension will likely exist in some form when you retire. However, successive governments may take measures to make it a less attractive proposition. As we've discussed, increases to the State Pension Age are likely (and some are already planned), the sustainability of the triple lock is under constant scrutiny, and there could be some form of means testing introduced in the future.
These things may or may not happen before you retire, but it is a good idea to plan for a scenario where the State Pension isn't as generous as it is now. Therefore, if you're in a position to make your own retirement arrangements, either through pensions or other investments, this is something you may wish to consider. Making your own arrangements means you're not at the mercy of changing government policies. If you're interested in exploring this option, we'd recommend you take a look at some of the articles below to get started:
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