The Government has launched a call for evidence ahead of its forthcoming review of the state pension age (SPA).
The Department of Work & Pensions has appointed Dr Suzy Morrissey to lead this review and make recommendations on the framework to be used by the secretary of state when considering future increases to the SPA.
Morrissey said the review would look at the merits of linking SPA to life expectancy, the role of SPA played in managing the long-term sustainability of the state pension, as well as the international experience of automatic adjustment mechanisms for making decisions about state pension age.
Today’s call for evidence asks for views from a broad range of organisations which will feed into this review.
Morrissey set out a number of specific issues where she is seeking opinion and views from interested stakeholders. This includes looking at how changes to the SPA will affect different demographic groups, with longevity linked to where people’s socio-economic background and postcode. She is also seeking views on how linking SPA to life expectancy might impact intergenerational fairness.
The current legislated timetable is for the SPA to rise to 67 between 2026 and 2028, and then to 68 between 2044 and 2046.
The Pension Act 2014 required the government to review the state pension age periodically. This is the third review of the state pension age, and depending on Morrissey’s recommendations, this could see the rise to 68 brought forward.
A number of countries already use automatic adjustment mechanisms — setting predefined rules that change the SPA on demographic, economic or financial indicators. For example in Italy, The Netherlands, Denmark and Portugal the SPA is linked to life expectancy through a number of different ways.
Morrissey says: “The impact of decisions around SPA are far-reaching. Therefore I want to make sure I have heard views from a broad range of organisations, experts and individuals throughout the course of my review, including those who have an interest in the wider social and economic impacts of an ageing society.”
This call for evidence was welcomed by many in the pensions industry.
Broadstone client consulting director David Pye says: “The launch of the SPA review is a critical step in laying out the long-term future of this hugely important core benefit for retirees to aid their individual planning and cashflow modelling that many now undertake.
“With an ageing population, previous governments have almost exclusively used an increasing state pension age to control costs – especially at a time of creaking public finances. But it will be interesting to see if the final report recommends anything different especially as life expectancy plateaus and our health landscape changes.
“If the atate pension age is increased or the amount provided is reduced or means-tested, it will only re-iterate the need for urgent reform in the private savings landscape to ensure adequate incomes at retirement.”
Retirement specialist Just Group’s communication director Stephen Lowe says: “As a result of rising longevity and dropping birth-rates, it is estimated that a quarter of the UK’s population will be aged 65 or older by 2050. This means that the burden of funding the State Pension will fall on a shrinking proportion of working people.
“If the Government wants to avoid increasing taxes or means-testing the state pension then it may have to look at options either to increase the age at which people receive the state pension or to moderate the amount paid.
“Neither of these are political vote winners. If the government does bring in changes to the state pension – either to the amount or the age at which it is paid – then it makes sense for people who are not yet receiving it to build up some resilience against those changes. This is important because more than four in 10 current recipients tell us the state pension accounts for the majority of their income and there is a significant proportion wholly reliant on it.”
