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The government’s plans to raise the state pension age to 67 by 2028 and age 68 by 2039 should be delayed because of a slowdown in longevity improvements, a former pensions minister has said.
New analysis by LCP found that if the government sticks to its policy of linking state pension age to life expectancy, the slowdown in improvements following austerity means there would not be a case for raising pension age from 66 to 67 until 2051, 23 years later than currently planned.
“The government’s plans for rapid increases in state pension age have been blown out of the water by this new analysis. Even before the Pandemic hit, the improvements in life expectancy which we had seen over the last century had almost ground to a halt,” said said Sir Steve Webb, a partner at consultancy LCP, who was a LibDem pensions minister in the coalition government.
“This analysis shows that current plans to increase the state pension age to 67 by 2028 need to be revisited as a matter of urgency. Pension ages for men and women reached 66 only last year, and there is now no case for yet another increase so soon,” he said.
LCP points out that in 2013, the government said people should on average spend up to a third of their adult lives in retirement, and that with current life expectancy, this threshold is already being met. Raising the state pension age 23 years later than currently planned would mean the Treasury could forego savings of £195m, according to LCP, but could give “reprieve” to 21m people born in the 1960s, 1970s and early 1980s.
Independence of SPA review questioned
A review of the state pension age was launched last Tuesday which must publish its findings in May 2023. The review will look at “whether the rules around pensionable age are appropriate, based on the latest life expectancy data and other evidence”, according to the government. It is led by Conservative peer Baroness Lucy Neville Rolfe, a former Treasury official, business executive and pension trustee.
Sir Steve and other critics have pointed out that the Pensions Act 2014 – on which he worked when he was minister - requires reviews of the state pension age to be independently led, and that a Conservative peer and former Treasury employee cannot be considered independent as stated by law.
As part of the review, the Government Actuary will provide a report which must assess the state pension age by analysing the latest life expectancy projections.
Longevity improvement figures point to slower increases
The Office for National Statistics’ latest population figures from 2016 and 2018 show life expectancy was lower than had previously been assumed. LCP said based on these latest projections, the implications for state pension age are “dramatic”.
The analysis found that “any move from 67 to 68 would not be needed until the mid 2060s, rather than the mid 2040s as per current legislation, and certainly not by the late 2030s as planned by the government”, while the move from 66 to 67, which is currently scheduled to be phased in over a two-year period between 2026 and 2028, could be put back to 2049-51.
“To add to the government’s problems, a new round of ONS projections for 2020 is expected to be published early in the New Year, and this will be the first to reflect any potential long-term impact from Covid-19,” LCP pointed out, noting that it could increase political pressure to delay state pension age 67.
Altmann: Allow early access but NICs for 45-50 years
Others have called for a flexible state pension age, to allow people with poor health and long contribution history to access their pension early. The poorest groups only stay healthy to around age 50 and are less likely to have a private pension, said Baroness Ros Altmann, a Conservative peer and also former pensions minister.
“If the government wants to control state pension costs just raising state pension age is a blunt tool which will hit the poorest hard, while leaving the better off relatively unaffected,” she said.
Thinktank the International Longevity Centre-UK has also pointed out that healthy life expectancy is falling.
Alongside greater flexibility, Altmann proposes to raise the minimum number of contribution years required for a full state pension to 45 or 50 years, from currently 35 years, “to help control affordability and sustainability”. A contribution requirement of 50 years would effectively exclude graduates from receiving a full state pension unless they work to age 71 and have no contribution gaps.
A petition to allow access to the state pension at 63 was launched earlier this year and closed on 7 December with 13,300 signatures. The government responded saying that reducing state pension age to 63 “is neither affordable nor fair to tax payers and future generations”.
It said the latest ONS data shows the number of people over state pension age is expected to increase relative to the number of working age people.
“The State Pension is funded through the tax contributions of the current working-age population. Reducing the SPa to 63 would therefore massively increase the tax burden of the current working-age population,” it said, noting that the cost of not increasing state pension age for both men and women would have been £215bn for 2010/11 to 2025/26, including other pensioner benefits and savings made on working age benefits.
In 2020, the Court of Appeal ruled that increases in women’s state pension age were not discriminatory. In July this year, the Parliamentary and Health Service Ombudsman found there was maladministration in the way the rises were communicated to women by the government.
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Should the planned state pension age rises be delayed?