Responding to the announcement from Work and Pensions Secretary Mel Stride that the Government will not bring forward the date the state pension age will rise to 68.
Matt Saker, President at the Institute and Faculty of Actuaries, said: “We welcome confirmation that the Government will pause any decision until a proper examination of longevity impact can be undertaken. Increasing longevity has been the driving force behind previous rises in the state pension age and it is right that Government properly assesses longevity trends before accelerating any planned increase in state pension age.
“The Neville-Rolfe report and evidence from the Government Actuary’s Department show that increases in life expectancy are slower than initially predicted. Raising the state pension age at a quicker rate in this context could have a detrimental impact on younger generations.
“The IFoA is keen to encourage policy decisions which provide a stable environment for people to save for the long term through a pension, and which remove unnecessary barriers or disincentives to doing so. Government must now engage with the wider pensions industry on short term longevity trends and their impact on future state pension age rises.”
Steven Cameron, Pensions Director at Aegon, comments: “Millions will be able to plan their retirement with greater certainty now the Government has confirmed it will not at this stage be accelerating planned increases in the state pension age. The state pension age is already due to increase from 66 to 67 by 2028 but there had been speculation that it would rise to 68 a number of years earlier the planned 2043. While people don’t need to wait until state pension age to access their workplace or private pension, it does remain an important part of retirement income for millions.
“State pensions are not paid out of some huge fund built up over the years but on a ‘pay as you go’ basis from the National Insurance contributions of today’s workers. Historic trends have shown people are living on average longer, which means with an unchanged state pension ‘starting’ age, the state pension is paid for longer, adding to the costs. Over the last 10 years, the state pension triple lock has also led to state pensions rising faster than inflation. The higher the weekly pension amount and the longer it’s paid on average increase the funding pressures on those of working age.
“However, Government analysis has now shown life expectancy at retirement is not increasing as fast as had been previously predicted, reducing the need to manage costs through a controversial state pension age hike in the run-up to a General Election.
“This will come as a relief to many nearer retirement who may simply feel unable to work into their late 60s. But the state pension age is still due to increase to 68 by 2043 with the possibility of future changes after a further review post-Election. This shows just how important it is to build up an adequate workplace or private pension, to give yourselves options in later life, including when to retire.”
Andrew Tully, technical director at Canada Life: “It is understandable why the Government has delayed this decision. However, with the cost of state pensions increasing and the current position of UK finances, we need a proper debate on the future of the state pension.
“Increases to life expectancy have not only slowed but projected to go into reverse since the last review. We also have a very unequal position with people in the poorest areas yet to see or feel the impact of the levelling up agenda, which will take decades and generations in terms of public health inequality. That supports a delay to the increase to state pension age as it will hit those in the poorest communities the hardest.
“The huge disparity in life expectancy across the UK is stark – as an example life expectancy in Kensington & Chelsea for a 65 year old male is 22.4 years whereas 17 miles away in Barking & Dagenham it is 17.5 years. It is even lower in other areas such as parts of Liverpool and Glasgow.
“Equally, it has to be acknowledged the state pension is hugely expensive, and in our pay-as-you-go system where the tax from the workforce pays the pensions of retirees’ there has to be a sensible debate around intergenerational fairness and the affordability of the state pension in its current format. Looking to the future we will see significant changes in the make-up of the UK population which will have a direct bearing on the state pension system. By 2045 the number of people of pensionable age will grow to 15.2 million, an increase of 28% on the level in 2020. The ‘oldest old’ cohort is also increasing with the number of people age 85 and over projected to almost double to 3.1 million by 2045.
“At the same time, the working age population will increase by much less – increasing by around 4.5% by the mid-2030s but then remaining around that level by 2045. Meanwhile we are seeing a decrease in the number of children with those age 0 to 15 projected to fall by nearly 9% by mid-2030. If we see this shift in the ratio of workers to retirees this will clearly have significant implications around any debate on the future funding of the state pension.
“Any changes to state pensions are always going to be controversial but it is a debate which needs to take place, sooner rather than later, and ideally any changes need to have cross-party support.
“Another key point is the minimum pension access age is linked to the state pension age. This is due to increase from the current age 55 to age 57 from 2028 and then it will increase again as and when SPA increases further, a point people need to consider as part of their retirement planning.”
Extract from the recent OBR forecasts as part of the Spring Budget, showing the costs of the state pension (and other pensioner benefits) is set to rise by 37%, from £116.8bn in 2021/22 to £160.4bn in 2027/28
Becky O’Connor, Director of Public Affairs at PensionBee, commented: “Announcing a more imminent increase to the State Pension age could have risked a strong backlash.
The Government today confirmed it would not increase the State Pension age from 67 to 68 any sooner than currently planned - for now at least.
The Secretary of State for Work and Pensions said that the current planned rise from 67 to 68 by 2046 ‘remains appropriate’, however the Government left the door open for a further review.
Given the cost of living crisis and slowing of life expectancy; at a time when more older workers are giving up work early because of poor health and when it feels harder than ever to save for oneself for retirement, moving the State Pension goalposts now would be a difficult sell. In reality, it will still be a hot potato for the next Government in a few years’ time.”
The Government said it was committed to give ten years notice of any changes to the State Pension age and enabling people to plan for retirement with certainty. This is reassuring, although many will say that ten years is still not enough time to adjust if you’ve worked for many decades with an expectation of when you would be able to retire.
It cited the level of uncertainty around life expectancy, the labour market and public finances as the reasons for deferring a decision to the next Parliament. These are good reasons to delay a decision on pushing a vital benefit further out of reach.
But given the pressures on the Government to make the State Pension more affordable and sustainable, younger workers should probably err on the side of caution and assume that the State Pension age will be higher rather than the same by the time they start to reach retirement age. Life expectancy data is expected to show signs of recovery. When it does, this would be the peg the Government would need to get an increase back on the table.
Another important factor that should be part of a decision is the adequacy of private pension savings. We know that currently, auto-enrolment minimum contributions are not delivering enough for moderate lifestyles in retirement. If the State Pension becomes a less reliable form of income that people get even later, there will be even more reliance on private savings among those who want to retire earlier than State Pension age or who want a lifestyle above a basic standard after they get the State Pension.”
Commenting, Steve Webb, partner at LCP said: “It is welcome that the government has taken account of the big slowdown in life expectancies in recent years and has held off any further increases in state pension ages for now. But there is a sting in the tail in the analysis which the government has published today. If it adopts the idea of placing a cap on the share of national income spent on pensions, this would mean a rapid increase in pension ages, including a rise to 69 before the end of the 2040s. This would be a draconian shift in policy which would be likely to mean today’s younger workers facing a pension age of 70 or above”.
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