The government has reportedly delayed controversial plans to increase the state pension age to 68 as life expectancy falls.
The state pension age is currently 66 and was set to rise to 68 after 2044. The government was planning to bring this forward to 2037-2039, with the plan due to be confirmed in May, but the decision has been delayed beyond the next general election, according to reports in the Financial Times.
Raising the state pension age was considered a controversial move and it was reported that there was growing concern that doing so ahead of the election could affect the outcome.
The decision to delay also comes at a time when life expectancy in the UK has fallen, following years of increases. At the beginning of the 1980s, average life expectancy was 71 for men and 77 for women and by 2017-19, average life expectancy had reached a record high of 79 for men and 83 for women.
However, between 2018-2020, this figure dropped slightly for men, in part as a result of the pandemic, while expectations of future life expectancy increases have also decreased. In 2014, the Office for National Statistics expected that by 2028, the average life expectancy for a 67 year old man would be 21.1 years and for women it was expected to be 23.1 years but latest projections suggest that by 2028, male life expectancy at age 67 will be 18.7 years, while female life expectancy at 67 will be 20.8 years for women.
Tom Selby, head of retirement policy at AJ Bell, said: “Accelerating the planned hike in the state pension age for millions of Brits would have raised billions of pounds for the Treasury, but it would also have been deeply unpopular and might well have cost the Conservatives the next general election.
“It would arguably have been viewed as unfair too, given the dramatic drop in average life expectancy we have seen in the wake of the pandemic, as well as the significant scaling back of future life expectancy growth projections.
“Going into a plebiscite telling voters they are living less long than previously thought and yet will have to wait longer for their state pension would have been a challenging sell on the doorstep to say the least.”
Selby said that the Government faces a balancing act when designing pension policy and will need to consider trends in every part of the UK when it publishes its state pension age review in May.
He said “One of the major challenges when designing state pension policy is balancing simplicity with fairness. The flat-rate state pension introduced in 2016 aims to simplify the benefit people receive over the long-term, while the state pension age remains universal. As such, the government has very much gone for simplicity over fairness, with the aim of creating a state pension system which savers can understand and use as a foundation for their retirement plans.
“The downside of this approach is it does not take account of the yawning differences in life expectancy that exist in the UK.”
Official data suggests that men living in the most deprived areas of the country live almost 10 years less than men living in prosperous areas, while the difference for women is almost eight years.
Selby continued: “There are ways this could be addressed, but each comes with significant challenges. Means-testing could make the system fairer but would add unwelcome complexity, not to mention administrative cost. Allowing earlier access to the state pension, potentially at a reduced rate, would at least allow those who may have limited life expectancy to access some of their state benefit sooner.
“However, one of the dangers here would be that people might end up short on cash, particularly in their later years, if any private pensions run out and they’re left with only that lower state pension income.”
A further idea that has been considered would be allowing people access to the full state pension after reaching a certain number of years’ National Insurance contributions. However, Selby warned that any change would entail a major overhaul of the state pension system, which would “inevitably be controversial.”
[Main image: ainara-oto-AOL94TAX0tU-unsplash]
