The state pension age and triple lock guarantee could come under fresh scrutiny as the government faces growing pressure on public spending, experts have warned.
While Chancellor Rachel Reeves is expected to remain silent on pensions in the upcoming Spring Statement on March 26, any worsening of the UK’s finances could force ministers to rethink key pension policies in the months ahead.
Steven Cameron, Pensions Director at Aegon, warned that if Budget forecasts are weaker than expected, the Chancellor Rachel Reeves “can’t rule out a ‘rabbit in the hat’ review of the state pension”.
The government may have no choice but to accelerate planned state pension age increases or reform the costly triple lock system, which has been under fire for its unpredictable costs.
Cameron said: “There’s already an ongoing review of the state pension age, and government finances may mean it needs to increase further or faster.”
The triple lock, which guarantees that the state pension rises each year by the highest of inflation, average earnings growth, or 2.5 per cent, has led to significant pension increases in recent years.
While ministers have repeatedly committed to keeping it in place, Cameron suggested the government could look at reforming how it works.
Analysts are sounding the alarm over a looming state pension changes
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“While the Government has currently committed to keeping it, the formula might be adapted,” he said, suggesting a smoothing mechanism.
He added: “Pensioners might receive an inflation increase as a minimum, and if, over the previous three years, wage growth has on average been higher than inflation, they could receive an additional uplift.
“This would protect pensioner purchasing power and make future costs less unpredictable.”
Despite speculation that ministers could be forced to take action sooner, Cameron explained that Reeves is unlikely to make major announcements on pension policy in the Spring Statement, which is expected to focus on updating the UK’s financial outlook.
The bigger decisions will likely come in the three-year Spending Review set for June or in the Autumn Budget later this year.
However, Cameron warned that if government finances deteriorate faster than expected, ministers may need to act sooner than planned.
Rachel Reeves is expected to remain silent on pensions in the upcoming Spring Statement on March 26
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He said: “If the OBR’s report and other budgetary pressures are worse than anticipated, we can’t rule out a ‘rabbit in the hat’ review of the state pension.”
Raising the state pension age has already been on the table, with an official review of when future increases will be introduced.
The pension age is currently 66 and is set to rise to 67 between 2026 and 2028, with another increase to 68 pencilled in for the late 2030s or early 2040s.
However, worsening government finances could bring these changes forward, meaning millions may have to wait longer to retire.
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Pensioners could also be hit by other government tax policies, with the continued freeze on personal tax allowances meaning more retirees will be dragged into higher tax brackets as their pensions rise.
This could significantly impact those with modest private pensions, who may find themselves paying tax on their income for the first time.
The government is preparing a Pensions Investment Review, which could see workplace pensions directed towards UK economic growth, potentially improving long-term returns for savers.
Meanwhile, the upcoming Pension Schemes Bill is expected to introduce stricter rules ensuring pension schemes offer better value and consolidate small, forgotten pension pots left behind by job changes.
Cameron urged the government to provide clarity on future pension policy, particularly given concerns over affordability.
