Ask any MP what has been the most controversial pension policy of recent years and they will tell you it is changes to state pension ages, with no fewer than four separate acts of parliament having increased pension ages since 1995.
The 1995 Pensions Act equalised pension ages at 65 by 2020, while the 2007 Pensions Act for the first time gave a timetable for reaching age 66, 67 and 68.
The problem for the government is that the improvements in life expectancy on which previous policy has been based have simply not materialised
The 2011 Pensions Act brought forward equality at age 65 to autumn 2018, and` brought forward the rise to age 66 by six years to 2020.
Most recently, the 2014 Pensions Act brought forward the move to age 67 by eight years to 2028.
The combined effect of these changes has been that a woman who was born after April 1961 could have spent the first 15 years of her working life expecting a pension at age 60, but will eventually not draw a pension until she is 67 – a huge change.
More change to come
Just before Christmas 2021, the government launched its second ‘independent’ review of state pension ages, to be chaired by Conservative peer and former Treasury minister Baroness Neville-Rolfe. This review will consider in particular whether the planned move to age 68 needs to be brought forward.
The statutory timetable is still that we should get to 68 by 2046, although a state pension age review chaired by John Cridland and published in 2017 recommended getting to 68 by 2041.
The expected improvement in life expectancy built in to the ONS’s 2014 forecasts has simply not happened
Until relatively recently, most expert commentators would have accepted the case for relatively rapid increases in state pension ages. The male state pension age was set at 65 nearly a century ago and no adjustment had been made in the following decades despite the huge increases in life expectancy.
Even as recently as 2014, the Office for National Statistics (ONS) was projecting continued improvements in life expectancy, and these figures were used as the basis for the 2017 review.
However, things have changed dramatically since then, even before we take account of any long-term impact from the pandemic.
Any further increase beyond age 67 would be simply indefensible for many decades to come
When the ONS prepared a fresh set of population projections in 2018, it found the expected improvement in life expectancy built in to its 2014 forecasts had simply not happened. Indeed, its forecast for years lived post-65 dropped by two years between the 2014 and 2018 forecasts.
On that basis, the case for an aggressive schedule of state pension age increases starts to look much weaker, even if the pandemic has no long-term impact on our collective longevity.
Finding a solution
In terms of setting the ‘right’ answer for state pension age, the government set out a formula to be the starting point for any review. This is that people should expect to spend no more than one third of their adult life in retirement, with adult life starting at age 20. To give an example, if the projections suggested a 20-year-old could expect to live to age 95, their state pension age should be 70, giving them 50 years in work and 25 years in retirement.
The male state pension age was set at 65 nearly a century ago and no adjustment had been made in the following decades despite the huge increases in life expectancy
The problem for the government is that the improvements in life expectancy on which previous policy has been based have simply not materialised. Not only do the latest figures provide no justification for bringing forward the schedule for reaching 68, they provide no justification even for going ahead with the increase to 67.
The move to 67 is due to happen during the next parliament, with a two-year phase-in period starting in 2026. This is sufficiently near for it to be highly unlikely the Treasury would at this stage willingly hand back the billions it would save through the next round of increases.
The case for an aggressive schedule of state pension age increases starts to look much weaker
However, if the state pension age review process is to have any credibility, it must conclude that any further increase beyond age 67 would be simply indefensible for many decades to come.
Steve Webb is a partner at LCP and former pensions minister
Steve Webb will be a featured speaker at Money Marketing Interactive Leeds.
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By sheer fortune, aged just 16 in 1977, I joined the Financial Services Sector and barring a short break for maternity leave in 1990/91 and a short period of rest following a stressful redundancy in 2005, have worked continuously since then. I will qualify for my state pension at age 67 in May 2028 by which time, if I am able to continue working, I will have been contributing towards the State Pension Scheme for 51 years.
I think it’s highly unlikely that I will live to see my 94th birthday i.e. 1/3rd of 51 plus age 67.
I am not unhealthy but I am already ‘worn out’ by working.
I’m not bitter, just very disappointed that even when the mortality statistics are proving precisely what I long ago predicted, this Government are very unlikely to deviate from the current plan.