The DWP has confirmed that it will not legislate to increase the state pension age more quickly than the current increases to 67 by 2028 and 68 by 2046, but a governement review has suggested a formula that anticipates an increase to 69 by 2048.
Today (30 March) has seen the publication of the government’s statutory review into the state pension age, and it has published two supporting reports – the independent review by Baroness Neville Rolfe and the Government’s Actuary’s report.
No change will be made to the legislated timetable before the General Election.
But there will be a fresh review in 2026 which will take account of the 2021 census data and clearer information on the impact of the Pandemic on long-term life expectancy.
The government has committed to keeping to the ‘10-year notice’ rule, which means that a review in 2026 could in principle still recommend changes as soon as 2036.
The previous state pension age review, by Sir John Cridland, recommended moving from 67 to 68 between 2037 and 2039, and that had been the government’s policy until now. The Neville Rolfe review proposes that transition happen between 2041 and 2043, but the government has decided not to implement that recommendation because of the uncertainty around life expectancy and other key factors.
The latest projections for state pension spending as a share of national income based on current policy are shown below:
|State pension spending as % of GDP||4.8%||4.9%||5.5%||6.2%||7.3%||8.1%|
However, the Neville Rolfe review also argues that there should be a cap of 6% of GDP on the total level of state pension spending. If this rule was implemented, state pension age would rise from 68 to 69 between 2046 and 2048. Former pensions minister Steve Webb explained anyone born after 1979 would therefore have a pension age of at least 69, if this rule were implemented. As the population ages, this new rule would imply even further increases in state pension ages or reductions in the value of state pensions, he said.
Webb, a partner at LCP commented:“It is welcome that the government has taken account of the big slowdown in life expectancies in recent years and has held off any further increases in state pension ages for now. But there is a sting in the tail in the analysis which the government has published today. If it adopts the idea of placing a cap on the share of national income spent on pensions, this would mean a rapid increase in pension ages, including a rise to 69 before the end of the 2040s. This would be a draconian shift in policy which would be likely to mean today’s younger workers facing a pension age of 70 or above”.
Baroness Altmann said: “The Government is right to recommend a wait and see approach, with further studies to understand better the full impact of both Covid – and the consequential backlogs in the healthcare system – on previous forecasts for life expectancy. A proper study, to be carried out in the next couple of years, will provide more essential information on which to base this important element of British welfare policy.”
Steven Cameron, pensions director, Aegon said: “Millions will be able to plan their retirement with greater certainty now the Government has confirmed it will not at this stage be accelerating planned increases in the state pension age. The state pension age is already due to increase from 66 to 67 by 2028 but there had been speculation that it would rise to 68 a number of years earlier the planned 2043. While people don’t need to wait until state pension age to access their workplace or private pension, it does remain an important part of retirement income for millions.
“State pensions are not paid out of some huge fund built up over the years but on a ‘pay as you go’ basis from the National Insurance contributions of today’s workers. Historic trends have shown people are living on average longer, which means with an unchanged state pension ‘starting’ age, the state pension is paid for longer, adding to the costs. Over the last 10 years, the state pension triple lock has also led to state pensions rising faster than inflation. The higher the weekly pension amount and the longer it’s paid on average increase the funding pressures on those of working age.
“However, Government analysis has now shown life expectancy at retirement is not increasing as fast as had been previously predicted, reducing the need to manage costs through a controversial state pension age hike in the run-up to a General Election.
“This will come as a relief to many nearer retirement who may simply feel unable to work into their late 60s. But the state pension age is still due to increase to 68 by 2043 with the possibility of future changes after a further review post-Election. This shows just how important it is to build up an adequate workplace or private pension, to give yourselves options in later life, including when to retire.”
Catherine Foot, director, Phoenix Insights said: “Bringing forward the timetable to increase the state pension age to the late 2030s would affect nearly 7 million people, but recent life expectancy projections are less optimistic and has made announcing the change politically challenging ahead of the next general election.
“But as huge numbers of our ageing population reach state pension age, it’s likely the acceleration will still be necessary for the long-term sustainability of public finances. Passing the buck until after the election could postpone implementing policies that address the real issues of work and health which cause many on low incomes to fall out work years before their state pension age, and with little private wealth to support their income. Around 29% of people who would be affected by bringing forward the increase are not confident about working until their planned retirement, with concerns around health ageism, motivation and skills drivers of this*.
“These people will be badly affected by any future changes, finding themselves at the mercy of a benefit system that is significantly less generous to working age people than it is to those above the state pension age. This group need additional targeted support or we will see a worsening of pre-retirement poverty.”