The risk of much bigger increases is now on the table
March 30, 2023 4:14 pm(Updated 4:15 pm)
For anyone worried about an increase in the age at which they will be able to draw their state pension, today’s announcements by the Government may seem like welcome relief. But there is a sting in the tail, and the risk of much bigger increases is now on the table.
The DWP has announced that there will be no changes to the existing timetable but that there will be another review in about three years. As things stand, this means we will have a state pension age of 67 by 2028 and of 68 by 2046.
But it would be premature to think that the risk of big increases in state pension ages has gone away.
The key document is the publication of an “independent” review into state pension ages undertaken by Baroness Neville Rolfe. Whilst I have great respect for the author, who is a Conservative peer, at the time she did the review she was a former Treasury minister and has since been restored to government. It seems reasonable to assume that her thinking may not be a thousand miles away from some of the ideas being considered within government.
The key feature of the Neville-Rolfe review is not so much its conclusions about the right time to move to age 68 (she proposes getting there in 2043, a few years earlier than the current law implies) but more for what she argues about the longer term.
The review points out that with an ageing population and sluggish economic growth, we are likely to see spending on state pensions eat up more and more of our national income. In 2021/22 we spent 4.8 per cent (or just under £1 in £20) of our national income on state pensions and related expenditure. This is set to rise to 5.5 per cent over the next twenty years and to a startling 8.1 per cent over the next 50 years.
Rather than allow this figure to continue to rise, Baroness Neville Rolfe suggests a cap on the share of national income going on pensions, and looks at a figure of 6 per cent. Her report says that if this principle was to be adopted, we would have to raise the state pension age to 69 by the late 2040s. On this basis, anyone born from 1979 onwards would have a pension age of at least 69.
But a rigid and absolute cap of this sort would be a very draconian measure. If the whole effort of keeping spending within the cap was borne by changes in state pension age, we could easily see today’s younger workers facing a pension age of 70 or above. Alternatively, the generosity of the state pension would have to be cut back, with not only the triple lock but even a link to earnings coming under threat.
Whilst a rule like this has a certain logic, it would have a pretty brutal impact, especially in parts of the country where people are often not in good health even below existing pension ages.
For example, across the whole of Scotland the average “healthy life expectancy” for a male at birth is 61.9 and for a female 61.2 years. This is the best part of a decade short of the kind of state pension ages being talked about. And in particular areas the figures are even more shocking. In Glasgow, healthy life expectancy at birth is just 56.1 years for a male and 55.8 years for a female.
If we go down the route suggested, then someone born in a deprived area today can expect poorer health to kick in around their mid 50s but to have to wait another 15 years or so before they could draw a state pension, by which time their health would be much worse. Their prospects of enjoying an active and fulfilling retirement in good health and supported by a decent state pension look vanishingly small.
It is obviously true that these problems go much wider than state pension policy. But it is vitally important that policies which make the fiscal arithmetic stack up do not mean that millions of people lose any hope of a decent quality of life in retirement.
Steve Webb is a partner at pension consultants LCP and was UK pensions minister 2010-15