Spending Review: State pension age rise brought forward

The state pension age will now rise to 66 by 2020 for both men and women, the Chancellor, George Osborne, has said.

The plan brings forward by six years the plan that the previous Labour government had put in place.

Mr Osborne told MPs that the increase from 65 to 66 would be phased in from 2018.

Meanwhile, workers in the public sector are set to have to pay higher contributions to their own pension schemes.

The government is planning changes to the big public sector pension schemes that will save it £1.8bn a year by 2014-15,

State pension

Pushing up the state pension age to 66 in 2020 will accelerate the existing plan, under which women's pension age would, by that date, have been equalised with men at age 65.

Equalisation will now be achieved by November 2018.

Mr Osborne said the new policy would eventually save the government £5bn a year by the end of the next parliament.

"Raising the state pension age is what many countries are now doing, and will by the end of the next parliament save over £5bn a year - money which will be used to provide a more generous basic state pension as we manage demographic pressures," Mr Osborne said.

In 2007, the Labour government followed the recommendations of Lord Turner's Pensions Commission.

It decided that the state pension age should rise: to 66 by 2026, to 67 by 2036 and to 68 by 2046.

During the summer, the new coalition government held a public consultation on bringing forward the first element of this plan because of the widespread evidence that people are continuing to live longer.

The government said at the time that leaving the state pension age at 65 "was not an option" and raising it would contribute to making the state pension more affordable as pensioners spent longer in retirement.

The timescale for raising the pension age to 67 and 68 is now also likely to be accelerated, the government said.

Public sector pensions

The chancellor said that he accepted that there had to be an increase in employee contributions for members of the big public service pension schemes.

His decision follows the recent initial recommendations of Lord Hutton's independent commission.

Although no detailed decision will be taken until Lord Hutton's full report is delivered next spring, Mr Osborne said he expected changes to save the government £1.8bn a year by 2014-15, which would be the third largest saving outlined in the Spending Review.

The amount is less than only the previously-announced ending of child benefit for higher rate taxpayers (a saving by 2014-15 of £2.5bn a year) and the curtailment of contributory employment and support allowance (a £2bn saving by 2014-15).

Mr Osborne said that any increases in pension contributions should be "staggered and progressive", with the lowest paid and members of the armed forces being protected.

But those who gained the highest pensions from final-salary schemes should be expected to pay the most, Mr Osborne added.

He also said that the final-salary scheme for MPs, though not formally part of Lord Hutton's review, would have to end in its current form.