Proposals to raise the state pension age are causing widespread confusion among millions of people who are approaching retirement.

This week business leaders and an influential think-tank proposed raising the state pension age to 70 by 2015. The call came only two weeks after George Osborne, the Shadow Chancellor, said that the Conservatives would raise the state pension age to 66 for men from 2016, eight years earlier than the Government’s plans.

The proposals have left millions of people in their fifties unable to plan properly for their retirement because they do not know whether they will be able to start drawing their state pension at 65, 66 or even 70, according to financial advisers.

Both the Institute of Directors and the National Institute of Economic and Social Research (NIESR) said that the Tories’ plans would not be enough to plug the Government’s huge deficits and that the state pension age should be increased “as soon as reasonably practical”.

Ray Barrell, of the NIESR, said: “Increasing working lives will raise consumption and tax revenues and reduce pension spending. These gains by the Government can be used to improve services, cut taxes or pay off debts.”

However, financial advisers say that plans to reduce government spending are leaving millions of older people in limbo. Laith Khalaf, of Hargreaves Lansdown, the independent financial adviser, said: “These proposals may have a devastating impact on older people’s retirement plans. Those who want to retire before 70 need to ensure they have enough savings because the State may not help them.”

If the state pension age were raised to 70 in 2015, someone who is 59 and will be 65 in 2015 would need to save £30,000, or £310 a month for the next six years with 6 per cent growth, to make up the shortfall from the missing state pension and retire at 65 as planned, Hargreaves Lansdown says.

The NIESR’s proposal for retirement at 70 has been criticised by unions, which say that lower-paid workers would lose out. Nigel Stanley, of the TUC, said: “Retiring at 70 is fine for those with desk jobs, but much harder for manual workers who will simply not have the physical stamina to work so long. They are unlikely to find work aged 65 to 70 and would be forced on to unemployment benefits, which would increase public spending anyway.”

The proposals also raise questions about when employers would be able to force workers to retire. Employers can require all staff to stop working at 65 regardless of their circumstances, although a government review of the default retirement age next year may abolish compulsory retirement.

Mr Stanley said: “It would obviously be ludicrous to raise the state pension age without first scrapping compulsory retirement at 65.”

More than 1.4 million people are over the state pension age and still working, according to the Office of National Statistics (ONS). Although many older people want to work for longer, some simply cannot afford to retire because their savings and property have lost value in the recession.

Andrew Harrop, of Age Concern and Help the Aged, the charity, said: “Raising the state pension age isn’t enough to tackle the challenges of an ageing population. Employees need more advice and training so they are able to work for longer, and employers need more help to recruit older workers.”

New life expectancy figures released by the ONS yesterday revealed that people will live considerably longer than was assumed when the Government proposed changes to the state pension in 2006. Men reaching 65 in 2023 can expect to live another 22.7 years (up from 21.2 years in 2006) and women can expect to live another 23.7 years (up from 23.7 years).

Rash Bhabra, of Watson Wyatt, the pensions consultant, said: “You would need to increase the state pension age to 66 almost overnight to make up for the cost of this increased life expectancy. The longer people live, the more expensive state pensions will be without further reforms.”

The entitlements

• The state pension age is 65 for men and 60 for women. This will change next year for women, when the state pension age will be increased over the next decade to age 65

• Women born on or between April 6, 1950, and April 5, 1955, will have to draw their pension some time between age 60 and 65. All women born after April 5, 1955, will receive their pension at 65 Once both men and women retire at 65 in 2020, the Government plans to gradually increase the state pension age for everyone. Between 2024 and 2026 it will rise to 66; between 2034 and 2036 it will rise to 67; and between 2044 and 2046 it will rise to 68

• The Government announced these changes in May 2006 — but even before its implementation, many experts agree that more radical reform of the state pension is needed to meet the pressures of an ageing population and increased public spending. The Conservatives say that their plan to raise the state pension age for men to 66 from 2016 would save £13 billion a year

• Lord Turner of Ecchinswell, whose proposals four years ago influenced the Government’s pension reforms, admitted this year that his plans did not go far enough. “If I was redoing my report now I would be more radical, arguing for an even faster increase in the state pension age,” he said in July

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