While the longevity gap between the best and worst off in society narrows, a universal State Pension age should be retained, says Club Vita
State Pension age (SPa) is playing catch-up: Longevity has been rising faster than legislated increases in SPa
Life expectancy of the ‘hard-pressed’ socio-economic group is catching up with the ‘comfortable’ group supporting retention of a universal SPa
While the longevity gap between the ‘hard-pressed’ and ‘comfortable’ socio-economic groups continues to narrow we should keep a universal SPa
The extra years of life are not all in good health: Focussing on increasing healthy life expectancy would reduce health and welfare costs, reduce constraints on State Pension expenditure and ensure fairness of any increases in SPa
Less reliance should be placed on highly subjective projections of what will happen to longevity in 50-100 years’ time. To be responsible and fair to younger generations, a realistic range for Spa should be communicated
Commenting on how inter-generational unfairness arises from SPa failing to keep pace with longevity increases, Steven Baxter, Head of Longevity Research at Club Vita, said: “Since 2000 life expectancy has risen by between 1.9 for ‘making-do/comfortable’ women and 3.1 years for hard-pressed men1. This pace of change is more rapid than the three year rise in SPa legislated to happen over the 28 years from 2018 to 2046. The SPa was already playing catch up, but the recent data suggests that pensioners are pulling further ahead, implying more support from younger generations of taxpayers for today’s pensioners. This is bad news for inter-generational fairness.
“However there is good news on fairness between socioeconomic groups. Since 2000 there has been a reduction of the longevity gap across pensioner socio-economic groups. It has fallen from 3.6 to 3 years between ‘comfortable’ and ‘hard-pressed’ men and from 2.1 years to 1.7 years between ‘making-do/comfortable’ and ‘hard-pressed’ women.
Commenting on the narrowing gap in life expectancy and the need to focus on healthy life expectancy: “Health information tends to cascade through groups in society. Early adopters are often the most educated, who are most likely to be in our ‘comfortable’ group. The narrowing of the gap since 2000 may be due to the benefits of smoking cessation ‘cascading’ down to lower earnings groups. This is good news and supports retention of a universal SPa. However, if the longevity gap widens in the future then it would be fairest to sacrifice some simplicity and move to a SPa which varies depending on whether an individual has high, medium or low career earnings.
“Typically 8 months of every year of extra life expectancy are years of good health. The primary focus should be on closing social inequalities in health and improving healthy life expectancy, rather than overall life expectancy. This would also reduce health and welfare costs. Increasing SPa will then be more practical and would be happening in an environment which supports the Review’s aims of fairness, affordability and fuller working lifetimes. The Review can help shift the emphasis to health by using language like receiving State Pension for up to 1 year in every 4 of healthy life expectancy2.”
Realism in the uncertainty of longevity predictions
Club Vita also believes longevity predictions used to determine the SPa could be calculated in a fairer and more realistic way. Alongside the Independent Review a schedule of increases in SPa are being produced using a formulaic link to projections of future life expectancy2. This relies on projections forecasting life expectancy many decades into the future and estimates of death rates some 60 to 100 years ahead. It is highly likely that the future will differ, possibly quite markedly, from what is suggested by today’s longevity predictions. Instead it would be better to make SPa revisions based on the certain knowledge of how life expectancy has increased in recent years3.
Commenting on the way the SPa is calculated and communicated Steven Baxter continues: “We wouldn’t have expected someone in the 1930s to predict today’s world, yet longevity predictions made today for 80+ years into the future will materially impact the state pension outcomes for millions of people. The formulaic link to longevity creates a false illusion of certainty which is likely to undermine confidence in the pension systems when it is inevitably revised. It would be fairer and more responsible to suggest to those in their 20s and 30s that there is an expected SPa of, for example 68-72; with a promise to confirm their SPa when they are in their late 40s/early 50s.”
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