In our earlier piece, Raising the State Pension age to 75: a betrayal, we argued that pushing the State Pension age into people’s mid seventies would break the basic deal workers and voluntary contributors have relied on for decades.
Since then, the argument has shifted up a gear. A 20 year State Pension.
Former pensions minister Steve Webb and consultancy LCP have gone public with a new package of “radical reforms”. They say it is time to stop thinking of the State Pension as something you receive from a fixed age until death, and start thinking of it as something you receive for a fixed number of years.
This is not government policy today. It has, however, been fed into the official State Pension age review, and is being discussed seriously in the pensions world. That is how big changes usually start.
For anyone who has spent a lifetime paying National Insurance, it might be too much to bear.
What the “20 year retirement” plan actually means
The new proposal can be boiled down to three ideas.
- People should only expect to receive the State Pension for roughly 20 years on average.
- To make the sums work, the State Pension age should rise by one year every decade for the foreseeable future.
- To answer the unfairness of people dying soon after reaching pension age, there would be a guaranteed minimum payment for the first few years, which could be passed on to a surviving partner or estate if you die early.
On the surface this is sold as modern and fair. Average life expectancy has risen, so the system should adjust. If you die shortly after qualifying, your contributions are still recognised through that guaranteed minimum.
Look a bit closer and the problems appear.
- A rolling increase of one year every decade is a ratchet. Once it is set, State Pension age keeps climbing with very little political friction.
- Fixing the “retirement period” at around 20 years ignores the huge gaps in health and life expectancy between rich and poor, and between different parts of the country.
- It treats averages as if everyone lives the average life, when we know many do not.
For a healthy professional in the South East, a 20 year State Pension might still feel reasonable. For someone who spent 40 years in manual work, or someone with chronic health problems in a poorer region, it could mean very little time in retirement at all.
The State Pension age review behind the scenes
This new plan has not come out of thin air. It sits on top of work the Government has already set in motion.
Ministers have launched a third review of the State Pension age and revived a Pensions Commission to look at the wider retirement system. The review is looking at two key questions:
- How closely should State Pension age be linked to life expectancy
- Should there be an automatic mechanism that adjusts State Pension age over time without a fresh Act of Parliament each time
Submissions from think tanks, consultants and former ministers feed into that process. Steve Webb and LCP have already put their “20 years of pension, one year SPA rise per decade” framework into that pipeline.
At the same time, commentators like Tom McPhail have argued in national newspapers that the way to save the system is to withhold the State Pension from people under 75. Viewed in that context, the new LCP proposal looks like the “sensible middle” between today’s rules and those much harsher ideas.
This is how the Overton window shifts. You place an extreme suggestion at one end, a polished technocratic plan in the middle, and leave today’s setup looking old fashioned and unsustainable.
Why expats and voluntary contributors should see this as a warning light
For someone who has spent decades in the UK and then moved abroad, the State Pension is not free money. It rests on years of National Insurance contributions, often topped up deliberately in later life.
Many expats have:
- Claimed the right to pay Class 2 rather than Class 3
- Sent sizeable lump sums to clear gaps in their record
- Planned their retirement around a State Pension age in the mid to late sixties
The value of those voluntary contributions depends on when the income starts. One extra qualifying year bought through Class 2 can pay for itself in under a year once you actually draw the pension. Delay the start by five or ten years and the payback period stretches out, or disappears entirely if you die before or soon after you qualify.
If the system moves to a rolling increase in State Pension age, linked to life expectancy, with a fixed “retirement period” target, two things happen:
- Your expected start date becomes much less reliable over a 20 or 30 year horizon
- The return on voluntary contributions becomes much harder to judge, because the finish line keeps moving
In our earlier article, we argued that pushing State Pension age towards 75 after people have planned and paid in is a breach of trust. The new “20 year retirement” idea does not fix that problem. It simply wraps it in more careful language.
The fairness problem that will not go away
Supporters of automatic increases and fixed retirement periods tend to lean on averages. Average life expectancy has gone up, so average time drawing a pension can be held at a steady number without obvious cruelty.
The trouble is that averages hide the spread.
- Life expectancy for wealthier groups has risen much more than for poorer groups
- Some regions lag the national picture by several years
- Healthy life expectancy has not kept pace with headline life expectancy
The people who are most likely to die before, or shortly after, State Pension age are those with the lowest incomes and the worst health. They are also the least likely to have large private pensions or investment portfolios to fall back on.
A system that quietly aims at “20 years on average” while steadily lifting State Pension age risks turning the State Pension into a long life bonus for the well off, while cutting into the only secure income many poorer retirees ever see.
Add in the many thousands of UK pensioners overseas who already get frozen State Pensions, with no annual uprating, and the picture for expats looks even more lopsided.
Automatic mechanisms are not neutral
On paper, an automatic link between life expectancy and State Pension age looks tidy. It removes political games and gives the system a clear rule.
In reality, the choice of rule is a political decision in itself.
- You can set a rule that protects a minimum number of years in retirement
- You can set a rule that caps years in retirement and lets State Pension age rise as far as needed to hit that cap
- You can design a rule that looks at health inequalities and regional differences, or you can ignore them entirely
Once a mechanism is in place, it becomes much harder for ordinary voters to argue with changes. Ministers can shrug and say “the formula did it”. That is attractive to a Treasury under pressure. It is far less attractive if you are the one who ends up working to 69 or 71 in poor health because a graph said so.
For expats, the risk is greater again. You are further away from day to day UK politics, less likely to be reached by official communication, and often bearing extra complexity around claiming from overseas or dealing with frozen uprating. A system that moves by formula in London, but still leaves you battling manual processes abroad, is not a good trade.
What a fairer answer would look like
None of this denies the basic problem. The State Pension has to be paid for. More people are drawing it for longer. Something has to give.
The question is where you place the strain. A fairer approach would look something like this:
- Keep State Pension age in a range people recognise as reasonable, especially for those already within 10 to 15 years of retirement
- Reform the uprating rules so increases are predictable and affordable, without the sudden jumps we have seen under the triple lock
- Use the strength of many workplace pension schemes more sensibly, including how surpluses are handled, instead of ignoring that part of the system
- Make auto enrolment work properly by widening coverage and nudging contributions up in a measured way
- Tackle the mess of small pension pots, lost pots and poor decumulation choices so private pensions deliver better real incomes
- Improve support for people in poor health or long careers in physically demanding work, rather than pretending everyone can keep going into their seventies
Those are all surgical changes. They deal with generosity, funding and private provision. They do not need a sweeping, permanent shift to a “20 year retirement” cap.
What UK expats should do now
If you are a British expat, particularly in mid life or early retirement, this is not a time to panic. It is a time to get organised.
Practical steps:
- Check your National Insurance record and understand how many qualifying years you already have
- Work out exactly which missing years would add value, and how much you would need to pay for them
- Run simple scenarios for yourself that show your position under today’s State Pension age, and under higher ages
- Keep your UK contact details and overseas address up to date with HMRC and DWP so you are not caught by surprise
- Keep an eye on how this debate develops rather than assuming the system will stay as it is
Above all, recognise that these ideas are not harmless “background noise”. The proposals now being fed into the State Pension age review are designed to shape the system for decades.
In Raising the State Pension age to 75: a betrayal, we set out why a hard jump towards 75 would cross a line. The new “20 year retirement” plan is a softer version of the same instinct so it deserves the same level of scrutiny, and the same firm response.