Govt facing 'tricky balancing act' on state pension policy

The government could be facing a "tricky balancing act" on state pension policy issues, industry experts have suggested, after figures from the Office for National Statistics (ONS) revealed that life expectancy is increasing at a slower rate than expected.

The data showed that the old-age-dependency ratio is projected to rise from 280 in mid-2020 to 341 by mid-2045, with an estimated 13.6 per cent of boys and 19 per cent girls born in the UK in 2020 expected to live to at least 100 years of age.

It also revealed that, in mid-2020, there was an estimated 11.9 million people of pensionable age in the UK, expected to grow to 15.2 million by mid-2045, whilst the working age population is projected to grow at a much slower rate, from 42.5 million to 44.6 million.

However, projections from the ONS also suggested that improvements are slowing, estimating that the life expectancy for men and women at state pension age is now more than two years shorter than previously thought in 2014.

The figures have prompted concern that the government may need to 'rethink' plans to further increase the state pension age, which is currently 66 for both men and women.

A review of the state pension age is currently underway, with a particular focus on proposals to bring forward a planned rise to 68 to 2037/39, although industry organisations have previously urged against this.

LCP partner, Steve Webb, said: “The last review of state pension ages was based on data which is now more than six years out-of-date. Since then, life expectancy at pension age for both men and women has dropped by more than two years.

“Such a dramatic shift in such a short space of time calls for a fundamental rethink of the government’s plans for increases in state pension age.

"With the move to 67 due to start in only four years, the Department for Work and Pensions (DWP) needs to speed up its current review, as the case for rapid increases is simply not justified by the evidence”.

However, Hargreaves Lansdown senior pensions and retirement analyst, Helen Morrissey, also noted that pensioner power is "on the rise", warning that there will be fewer people shouldering the burden of a much larger state pension bill, which could leave the government with a "tricky balancing act".

She continued: “We’ve seen state pension age increase rapidly in recent years to accommodate this, but the situation is not so simple anymore. There is growing discussion as to whether future increases should be brought in quite so quickly as longevity does not seem to be increasing at the same rate it once was.

“Added to this are the wider implications for people’s retirement planning. Living to 100 is a huge positive but how can it be financed? If you start a pension at 22 and retire at 65 will you really have accumulated enough to potentially last you another 35 years?

“While many people will be able to continue working into their 70s, for others it just won’t be an option – just because we are living longer doesn’t mean we are living longer in good health."

In light of this, Morrissey highlighted the increased need for social care, emphasising that this can cost the elderly and their families many thousands per year.

“While state pension age is under review, auto-enrolment reforms have been mooted and we await the introduction of a social care plan there are no quick policy fixes and people must do all they can to boost their pensions and investments so they are as prepared as they can be," she said.

    Share Story:

Recent Stories

Multi asset credit
Pensions Age editor, Laura Blows, discusses multi asset credit with Royal London Asset Management senior fund manager, Khuram Sharih
Pensions Age podcast: buy-outs and buy-ins for member and employer nominated trustees
Pitfalls and good practice when approaching insurers with Pensions Age editor, Laura Blows, Martin Parker (Just Group) and Akash Rooprai (ITS)