- Plans to increase the state pension age may need to be accelerated to keep costs in check, the International Longevity Centre (ILC) warns (Not if but when: The demographic and fiscal case for increases to State Pension Age – ILCUK)
- Under current legislation the state pension age will rise to 67 by 2028 and 68 by 2046 – although the previous Government proposed bringing forward the increase to 68 by 7 years to 2039
- Maintaining the current proportion of the population living up to and beyond state pension age would require an increase in the state pension age to 68 by 2034, 69 by 2038 and 70 by 2042, according to the ILC
- However, ensuring one third of adult life is spent in receipt of the state pension would push back the planned increase to age 67 to 2040 – but cost the Treasury billions of pounds
- The Treasury currently spends around £100 billion a year on the state pension
Tom Selby (pictured), head of retirement policy at AJ Bell, comments:
“The Government faces a £100 billion question on what to do about the state pension. On-the-one-hand, official life expectancy projections were recently downgraded by the Office for National Statistics, potentially opening the door to the delay or even cancellation of planned state pension age increases.
“Indeed, the International Longevity Centre reckons that in order to maintain one third of adult life in retirement – a proportion previously referenced in Government policy – the proposed rise in the state pension age to 67 would need to be pushed back 12 years, from 2028 to 2040.
“This would clearly be popular politically – a factor that should never be underestimated – but would also cost the Treasury billions of pounds.
“On-the-other-hand, maintaining the current proportion of the population living up to and beyond state pension age would imply a dramatic acceleration in state pension age increase, with the state pension age hitting 70 by 2042.
“Given any decision on the state pension age is expected to be made in 2023, in the shadow of a general election, it is extremely unlikely the Government would go down this road.”
‘Up to’ one third of adult life in retirement
“Back in 2013 the Government established a link between life expectancy and the state pension age, suggesting on average people should spend ‘up to one third’ of adult life in retirement.
“The words ‘up to’ were inserted deliberately and potentially give the Treasury valuable leeway when setting policy. It is also entirely possible the principle will be revised or abandoned entirely on cost grounds.
“The review of the state pension also needs to consider variations in life expectancy. For example, those living in poorer areas of the UK can expect to live around a decade less than those living in wealthier regions.
“Setting state pension policy is always a balance between fairness and simplicity, but a Government focused on ‘levelling up’ across the UK should, in theory, be mindful of life expectancy disparities and looking for ways to address them.”