The real impact of the State Pension age increase

Millions of women born in the 1950s have seen their state pension age rise by up to six years. The state pension age for both women and men is currently 65 and will go up to 66 in 2020.

It’s not just state pension payments from the age of 60 that women have missed out on. Women born in the 1950s also lost out if they took early retirement, had divorce settlements based on a state pension age of 60 or had insurance policies that would only last until their 60th birthday. Here, we look at what all this could add up to?

Early retirement

Thousands of women took early retirement on the basis that their state pension would be paid from the age of 60. That means they lost out in several ways:

  • Salary payments for the years between them stopping work and the date they would otherwise have retired at
  • Their employer’s contributions into their workplace pension, if they were signed up to it
  • The growth on their pension money.

The amount of money that 1950s women lost out on will vary from one woman to the next. If you look at an average wage of £27,000 a year, then over six years, that would add up to £162,000 in lost earnings alone.

But that’s rather a simplistic approach. Many women retire before state pension age anyway, many who work do so part time. But those who did take early retirement thinking they’d get their pension in a few months will have suffered financially if they couldn’t find a job that paid a similar salary or wage. And that loss could be many tens of thousands of pounds.

Divorce settlements

Most divorces involve what’s called a ‘clean break’. It means that money, property and pensions are divided between the couple and there’s no arrangement for one person to pay the other ongoing payments. But with some divorces in England and Wales, especially in the past, the husband would be ordered to pay his ex wife maintenance.

The maintenance payments were for women who weren’t able to work, either because they were looking after the children or because they didn’t have the right skills to work.

These repayments ended when the ex-wife reached retirement age, which generally means state pension age. There are many examples where courts have said that maintenance payments must stop at 60, when the woman in question won’t get her state pension until she is 65 or 66.

Income protection policies

Income protection policies are designed to pay out if you’re too ill to work. They pay a percentage of your income and they can be invaluable if you have a long-term illness that means you cannot do your job.

The problem is that they’re generally only set up to last until women reach the age of 60. This continued even after plans to equalise the state pension age for women and men at 65 became law.

Pensions lifestyling

If you have a pension or an investment product, lifestyling is when your money is moved from ‘risky’ investments, such as shares, to less risky ones, such bonds and cash, as you approach retirement. The process normally starts at least ten years before you retire.

For women retiring at 60, lifestyling would start at 50 at the latest. But for women retiring at 65 or 66, the process may not start until they’re 55 or 56. One newspaper did some calculations showing that women could be missing out on several thousand pounds of stock market growth, because their pension funds would have been move to less risky investments too early.

Of course, if the stock market had not risen by the amount it has over the last ten years, the amount women could be missing out on would be less.

Links with an * by them are affiliate links which help Rest Less stay free to use as they can result in a payment or benefit to us. You can read more on how we make money here.

If you’re considering getting professional financial advice, VouchedFor is offering Rest Less members a free pension check with a local advisor. There’s no obligation but once you’ve had your review, the advisor will discuss the potential for an ongoing relationship if you think it might be useful to you.

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