Recent research by the Office for National Statistics has revealed that although the number of people aged over 100 in the UK has risen to its highest level in 2020, the average life expectancy at birth fell by 7.8 weeks. How is this impacting on pensions? 

According to this research, the coronavirus pandemic has led to “significant reductions” in life expectancy compared with the previous period in 2015-2017. 

After decades of improvements in life expectancy, the COVID pandemic has changed this dramatically, at least in the short term. 

Simultaneously, there were more than 15,000 people estimated to be aged 100 or over in the UK in 2020, almost a fifth higher than 2019. This increase in centenarians can be traced back to a spike in births after the first world war.

“A record number of centenarians are defying the pandemic, but they’re wrestling with inflation,” said senior pensions and retirement analyst at Hargreaves Lansdown, Helen Morrissey.

Developments in healthcare and lifestyle have contributed to an increase in the number of people living past the age of 100, which Morrissey believes shows the importance of solid retirement planning that “stands the test of time”. 

“It is well known that we tend to under-estimate our life expectancy, but this data shows the increasing likelihood of needing to amass a pension to last thirty years or more,” Morrissey said. 

Pensions minister Guy Opperman has re-affirmed the government’s plans to expand auto-enrolment to over 18s and abolish lower earning limits in the “mid-2020s” which means more people will be able to make a start on saving for their retirement earlier.

Although the population of the over-90s continued to grow in 2020, it did so at a slower rate, increasing by 0.7% from 2019, compared with a 3.6% increase in the previous year. As life expectancy at birth falls and the longevity gap between regions increases, should the government rethink the planned hike in state pension age from 66 to 67 in 2028?

“Given the catastrophic impact COVID has had on all of our lives – and in particular on life expectancy – it makes sense to begin this debate now,” said head of retirement policy at investment platform AJ Bell, Tom Selby. “State pension age changes have been planned for a long time and were designed to reflect longer-term improvements in life expectancy.”

The fall in life expectancy was not equal across regions. Large drops in male life expectancy at birth were seen in the North East, of 16.7 weeks. For females, life expectancy went down in the West Midlands (9.9 weeks) but significantly up in the South West (17.7 weeks).

“What’s more, the vast differences in life expectancy in different parts of the UK will likely reignite the debate around the flexibility of the state pension system,” said Selby.

Under the current framework, people cannot have access to their state pension until they hit state pension age, meaning those with a lower average life expectancy will receive less from the state in retirement on average. 

Comparing specific locations, male life expectancy fell by 1.9 years in Hertsmere but rose by 2.1 years in Westminster. Likewise, female life expectancy dropped 1.1 years in Derby but surged 1.7 years in Kensington and Chelsea.

“One idea often floated is to allow people to access their state pension early but at a reduced rate. This could help certain groups who might expect to live less long, although care would need to be taken not to heap more complexity onto what is already a complicated system,” said Selby. 

He also added that although rowing back on the hike would undoubtedly be popular, it would cost the Treasury billions of pounds, at a time when public finances are “already stretched to breaking point”.