I wrote yesterday about raising the state pension age to 75. To put this in context, someone retiring at age 60, with a £250,000 pot of defined contribution savings, could buy themselves an escalating (3%) 15 year fixed term annuity of £19,400 a yearhttps://t.co/oUOQmIyxsp
— Tom McPhail (@PensionsMonkey) August 27, 2025
If you have a Times subscription – read this article from the start to the end, Tom is a great writer, a Toby Nangle for people who don’t work in the financial markets!
But rather than give you Tom’s preamble – in which he explains how the state pension has got to where it is, let me quote Tom when he gets to his proposal to a Government looking at State Pension as a means of sorting out the mess a large proportion of people are in
The state pension has evolved over time. It started as an insurance scheme for those who lived past working age, providing subsistence support at a time when most people lived only a handful of years in retirement, if at all.
It is now practically a universal benefit, paid to millions from an age that, for a lot of them, could be reasonably described as late middle-age.
At this point and given the fiscal pressures, new solutions are needed. So I would go for a radical reset: keep the state pension universal — same rate for everyone, irrespective of where you live, how healthy you are or how rich you are — but also push the state pension age back to about 75.
And here is the reason he feels we could all live with that
At this age, it would be possible to set it at a level where people could actually live on it. Send a clear message: your private savings are to cover the gap between stopping working and age 75.
Tom has worked out that someone retiring at age 60, with a £250,000 pot of defined contribution savings, could buy themselves an escalating (3%) 15 year fixed term annuity of £19,400 a year.
These numbers don’t go into the Times article, they’re in the tweet that I copied at the start of this article.
I can verify this is possible as it’s what we’ve advised a relation to do at 60 with a DC pot of around that amount. She has, being risk averse and having very clear ideas on what she wants to get paid now she is retiring (from teaching)
This is also a decent strategy if we are to move back to “money purchase” or even if we stay invested and go for flex and fix with the pot still invested and fingers crossed.
There is something satisfying about theorising what used to be called a “bridging pension”, the bridge is the private saving, the big deal is the state pension and the whole thing would work so long as annuities remain at current levels or we could devise an investable product that could get there with some risk-transfer to the markets (here a with-profits solution comes to mind). But I’m getting too fancy and forgiving of what is an idea that goes against the pension system that we have been bought into over the past fifty years.
Here the idea of pensions is based on money staying in the system using collective approaches to the payment of private pensions. This did include people retiring earlier than a state pension and occupational pensions did offer a bridging pension which fell away when the state pension arrived.
The only solution that properly bridges to a state pension starting at 75 is work and a very expensive incapacity benefit paid to those who can’t work. The state pension cannot be pushed back to 75 without a revolution amongst the working population. As Bryn Davies said at a recent Pension PlayPen coffee morning, we may have the “go big” idea of an affordable state pension. That was the aim of SERPS and S2P and GAD have even mooted that AE may allow acceleration towards affordability with our State Pension. But as Bryn said, “go big” slogans get reduced to what politicians can implement whilst staying in power.
We have actually “gone big” in the Pension Schemes Bill, by returning to a nudge based default decumulation fund where the nudge is into a deferred annuity (with hopefully better alternatives such as DB and CDC). This “big idea is actually a return to a view that a State Pension is a first step and a universal pension for those who work is the second.
What I think Tom wants is to find a way to plug the leaking bucket which is state pension costs as we go into the second part of this century and I know that there are many people who agree with 75 as the State Pension Age.
But the idea of saving for a pension that runs out at 75 (the bridge pension) is another matter. Tom keeps it for his tweet and holds it back from the Times article (or maybe the editor had that idea?).
Bryn is probably right in saying that “go big” is worth discussing, but the harsh reality is political acceptability! The tough truth is that Govt. will not make “workplace” a bridge to a better state pension at 75 . I cannot see a Government which has reinforced lifetime private pensions rejecting them – 18 months later.
I’m sorry but this is another reason why I do not want distractions from the job in hand Tom!