The government’s current plans to raise the state pension age to 67 by 2028 and age 68 by 2039 have been ‘blown out of the water’ because expected improvements in life expectancy have failed to materialise, according to a new analysis of population projections by LCP.
The research found that if the government follows through on its policy of linking the state pension age to life expectancy, as projected by the Office for National Statistics, there would be no reason to raise the pension age from 66 to 67 until 2051 – 23 years later than currently planned. This change would deprive the treasury of at least £195 billion in planned savings on state pension expenditure while providing a state pension age ‘reprieve’ to over twenty million people born in the 1960s, 1970s, and early 1980s.
A link between state pension age and longevity was established in government policy in 2013. The first review of state pension ages (undertaken by Sir John Cridland) said: “In 2013 the government stated that on average people should spend up to one-third of their adult life in retirement and that the state pension age should reflect this longevity link so long as ten years notice of changes was given. The 2014 Act put in place the requirement for independent reviews to consider this.”
The first such review was published in 2017 and used population estimates from the Office for National Statistics (ONS) as of 2014. These projections assumed that life expectancy would rise further in the coming decades. On that basis, the government actuary’s department calculated that the state pension age should be raised to 68 by 2041 to ensure that no one spends more than one-third of their adult life in retirement. Responding to the report, the DWP indicated that it planned a slightly tougher schedule, reaching 68 by 2039, though it did not change the law at that stage. This is seven years ahead of the schedule currently set out in legislation.
But since the last review the ONS has published population estimates for 2016 and 2018 which show that life expectancy is lower than previously thought. For example, 2014-based projections suggested that a 66-year-old woman today could expect to live to be around 89 (based on significant continued improvements in life expectancy), whereas 2018-based projections now predict that the same woman will only live to be around 87. LCP has re-run the government actuary’s calculations using the most recent projections to see what they imply for the state pension age. The conclusion is that any transition from 67 to 68 would not be required until the mid-2060s, rather than the mid-2040s as currently proposed by the government, and certainly not by the late 2030s.
LCP partner Steve Webb says: “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. But the schedule for state pension age increases has not caught up with this new world. 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”.