Faster state pension age rise to 68 delayed on slower life expectancy data
The rumoured plans by the Government to bring the state pension age rise to 68 earlier than initially tabled has been set back on account of slower life expectancy improvements.
Under current plans, the state pension age is set to rise from 66 to 67 by 2028, before it was expected to rise to 68 between the years 2044 and 2046.
However, reports earlier this year suggested the Government was planning to accelerate the state pension age rise to 68 by as early as the mid-2030s, amid aging population and falling birth rate concerns.
But now, the Government has confirmed it is sticking to the current timetable, with the planned pension age rise from 66 to 67 for those born after April 1960 “remaining appropriate”. Meanwhile a review is expected within two years of the next Parliament (2026) where it will reconsider the rise to age 68.
State Pension age Review 2023 published today by the Department for Work and Pensions, wrote: “The current rules for the rise from 67 to 68 remain appropriate and the Government does not intend to change the existing legislation prior to the conclusion of the next review. All options for the rise to the State Pension age from 67 to 68 that meet the 10 years’ notice period will be in scope at the next review.”
It added: “This gives the Government appropriate time to take into account evidence which is not yet available on the long-term impact of recent challenges, including the Covid pandemic and global inflationary pressures. These events bring a level of uncertainty in relation to the current data on life expectancy, labour markets and the public finances.”
Slowing, rather than falling life expectancy
The DWP noted that since the 2017 State Pension age Review was undertaken, the rate of increase in life expectancy has slowed.
For example, in the 2014-based projections that informed the 2017 Review, life expectancy at age 65 was projected to reach 27.3 years by 2060, whereas in the latest 2020-based projections it is forecast to reach 24.4 years.
“For most people and communities this does not represent falling life expectancy, as life expectancy at age 65 is 20.9 as of 2020, but a slower rate of future improvement. Nevertheless, the Government is aware of growing inequalities in life expectancy outcomes and is taking action to tackle this,” it stated.
Another reason for the move is on birth rates. The number of children people have on average is lower than seen historically and is also lower than at the time of the 2017 State Pension age Review. As a result of changes in total fertility rates and continued life expectancy improvements, there are projected to be five million more pensioners in the population by 2070 and just one million more of working-age.
The DWP noted that in 2020, there were 280 pensioners for every 1,000 working age people. But this will increase rapidly from the 2030s and will reach levels “never seen before” by 2070, where the ratio is projected to be 393 pensioners per 1,000 people of working age.
Secretary of state for work and pensions, Mel Stride, said: “It’s essential the state pension remains sustainable and fair across the generations. Our balanced approach will help achieve this and ensure we continue to provide security and dignity in retirement for millions of people across the country.”
General election: ‘political suicide’
In France, riots are taking place over President Emmanuel Macron’s decision to bypass Parliament and push through a major pension reform in raising the minimum retirement age from 62 to 64.
In the UK, “it comes as no surprise that the Government has backed away from the idea of accelerating a planned rise in the UK state pension age to 68”, Tom Selby, head of retirement policy at AJ Bell said.
He added: “With less than two years to go until the general election, hiking the state pension age faster would likely have been political suicide for the Conservatives, who are already trailing Labour in the polls.
“The decision will come as a huge relief to people in their late 40s and early 50s who could potentially have been forced to wait an extra 12 months to receive their state pension as a result.”
He said: “Increasing the state pension age faster now would also arguably have been unfair, as average life expectancy has actually fallen recently, while forecasts of future life expectancy improvements have also been significantly scaled back.
“Given improving life expectancy is one of the primary justifications for raising the state pension age, accelerating the planned rise to age 68 when life expectancy has dipped would be an extremely tough sell, to put it mildly.
“However, this might not be the end of the story. If life expectancy growth returns by then, the next administration will likely be left grappling with this thorny issue once again.”