\n\t\t\t\t\tAs the state pension turns 100, here’s what it could look like for retirees in the future\u00a0\t\t\t\t\t <\/p>\n
The UK\u2019s state pension<\/a> has reached a landmark moment. While the first state pension was introduced more than a century ago, this year marks 100 years since the creation of the contributory model that still underpins retirement <\/a>today.<\/p>\n Rising life expectancy and mounting costs are forcing difficult choices about who pays, how much they receive and when they can retire.<\/p>\n Here, we look at how the contributory state pension reached its centenary, why major changes may be looming, and what they could mean for retirees and taxpayers alike.<\/p>\n New FeatureIn ShortQuick Stories. Same trusted journalism.<\/p>\n How the state pension began<\/p>\n When the state pension was first introduced in 1909, it was means-tested, paid only to those aged 70 and over, and set at a level that offered little more than subsistence.<\/p>\n At the time, life expectancy at birth<\/a> was around 50, meaning many workers never lived long enough to claim it.<\/p>\n The system changed in 1926 with the introduction of the contributory state pension, which linked entitlement to national insurance contributions (NICs)<\/a> and reduced the pension age to 65.<\/p>\n Over the following decades, the state pension expanded alongside the welfare state. The most recent major reform came in 2016, when the government introduced the flat-rate new state pension.<\/p>\n Today, the full new state pension is worth \u00a3230.25 per week, rising to \u00a3241.30 per week from April<\/a>. But its long-term future is increasingly uncertain.<\/p>\n Below we look at the challenges the state pension faces if it continues for another 100 years. <\/p>\n Rising pension ages<\/p>\n Sir Steve Webb, former pensions minister and now partner at pensions consultancy LCP, said further increases to the state pension age are increasingly probable.<\/p>\n He said: \u201cThe biggest change we are likely to see is a continued increase in state pension ages, reflecting the big increases in life expectancy at retirement in the last century.\u201d<\/p>\n A Government review of the state pension age<\/a> \u2013 which is currently 66 for both men and women, rising to 67 between April this year and April 2028 \u2013 is currently under way, with its conclusion expected after the next election.<\/p>\n For the Treasury, even small increases have a big impact, Webb said.<\/p>\n \u201cIncreasing the state pension age by just one year saves the government around \u00a38bn per year, which would make a meaningful contribution to the chancellor\u2019s fiscal position.\u201d<\/p>\n Critics argue, however, that average life expectancy masks stark inequalities, with people in poorer health or physically demanding jobs less able to work longer, adding to the number of those already struggling financially in their older years. <\/p>\n Adapting the triple lock mechanism<\/p>\n Webb said the \u201cvery generous\u201d triple lock annual uprating<\/a> is likely to be scaled back.<\/p>\n But he added it\u2019s important that it is replaced by something which keeps a link to the wages of working age people as \u201canything less than this could lead to a serious increase in pensioner poverty\u201d.<\/p>\n Since 2010, the triple lock has guaranteed that it rises by the highest of inflation, earnings growth or 2.5 per cent.<\/p>\n While this has protected pensioners\u2019 incomes, it has also driven costs sharply higher and made public spending harder to predict.<\/p>\n It will cost an estimated extra \u00a315.5bn annually by 2029-30, adding billions more to the national debt than initially predicted due to high inflation and wage volatility, official figures show.<\/p>\n There have been several suggestions about how this could change<\/a>, including into a double lock \u2013 linking pensions to inflation or earnings but dropping the 2.5 per cent floor.<\/p>\n Catherine Foot, director of the Standard Life Centre for the Future of Retirement, said a shift to a double lock would make future increases more predictable, but would be extremely controversial politically.<\/p>\n \u201cIt is clear that any changes made to the state pension should recognise that policies need to be in place to help more stay in work until reaching state pension age and to support people financially who are unable to work until they reach this milestone.<\/p>\n \u201cIt\u2019s also important that if the Government decides to make any changes to state pension age arrangements in the future that there is a clear communication plan in place to help ensure each generation can plan their future without sudden surprises.\u201d<\/p>\n Will the state pension become means-tested?<\/p>\n Another policy sometimes suggested is means-testing the state pension \u2013 essentially it would most likely mean that your income would be taken into account, to some extent, when calculating your state pension.<\/p>\n Experts are divided by how likely this will be. <\/p>\n Webb said: \u201cThis seems highly unlikely. Such a change could not reasonably apply to those who had already retired or those close to retirement, meaning that the short-term saving from means-testing would be nil.<\/p>\n \u201cThe political opposition to something as fundamental as this would be huge. It is a brave politician who proposes a policy which generates no savings for five to ten years but is immediately highly unpopular.\u201d<\/p>\n Jamie Jenkins, director of policy at Royal London, however, said: \u201cMeans-testing can play an important role in ensuring that state benefits are targeted in helping the people who most need them and ensuring the long-term sustainability of funding.<\/p>\n \u201cHowever, the state pension needs to be considered in the wider context of decades of under saving for retirement here in the UK.\u201d<\/p>\n More people will have to think about tax<\/p>\n For the first time next year, the state pension will surpass the personal allowance threshold<\/a> from 2027.<\/p>\n The state pension will rise by 4.8 per cent this April, taking the annual amount to \u00a312,547.<\/p>\n The personal allowance \u2013 the amount you can earn before you have to pay any income tax<\/a> \u2013 will remain frozen at \u00a312,570 until 2031, meaning that by 2027 it is expected that the state pension will be higher than this amount.<\/p>\n Although the Chancellor said she is working on a solution so that people receiving just the state pension will not be taxed, it has caused concern for many for are worried their retirement funds could be hit.<\/p>\n