Andrew Tully, pensions technical director at MGM Advantage
To give an example of how this could impact upon the future SPA, we can look back at how longevity has improved in the past. According to the Office for National Statistics a male age 65 in 1991 could expect to live for 14.1 years in retirement. A male age 65 in 2011 could expect to live for 18.1 years, a 4.2 year improvement in longevity over that 20 year period.
If that 4.2 year increase in longevity were replicated over the next 20 years – 2011 to 2031, by 2031 state pension could rise from the current 65 to age 69. It has already been pre-announced that SPA will increase to 66 between 2018 and 2020, and then to 67 between 2024 and 2026.
If there was a further 4.2 year increase in longevity between 2031 and 2051, state pension age could then rise to 73.
This should serve as a wake-up call for many people. Today’s 33 year old is likely to need to work until age 73 before they get their state pension. They may have planned to work to age 65, but the reality is likely to be beyond age 70 for many. If people want to stop work at an earlier age they need to review their retirement planning, and take control of their future.
Paul McGlone, principal and actuary at Aon Hewitt
Linking State Pension Age (SPA) to life expectancy is a crucial part of managing the cost of pensions. There are clearly tricky issues around equality, as the difference in life expectancy across different social groups is substantial, and, for example, increasing State Pension Age for a healthy female on a high income will have far less impact proportionately than for an unhealthy male on a low income.
Nevertheless, we agree that it is a step in the right direction. A question which the Government now needs to address is whether that flexibility should be extended to companies who have made pension promises.
Although the change to State Pension Age occurs in the future, the change applies to state benefits that individuals have already accrued and contributed towards.
Companies, on the other hand, cannot do that under existing legislation and any change to a pension scheme’s retirement date would only apply to benefits earned in the future.
