The government’s current plans to raise state pension age to 67 by 2028 and age 68 by 2039 have been ‘blown out of the water’ because expected improvements in life expectancy have largely failed to materialise.
If the government sticks to its policy of linking state pension age to life expectancy (as projected by the Office for National Statistics), there would now be no case for raising pension age from 66 to 67 until 2051 – twenty three years later than currently planned. This change alone would deprive the Treasury of at least £195 billion in planned savings on state pension expenditure but could give a state pension age ‘reprieve’ to more than twenty million people born in the 1960s, 1970s and early 1980s.
A link between state pension age and longevity was established in government policy in 2013. The first review of state pension ages (undertaken by Sir John Cridland) said:
“In 2013 the Government stated that on average people should spend up to one third of their adult life in retirement, and that the State Pension age should reflect this longevity link so long as ten years notice of changes was given. The 2014 Act put in place the requirement for independent reviews to consider this”. (p21)
The first review undertaken on that basis was published in 2017 and used population estimates prepared by the Office for National Statistics (ONS) as at 2014. These projections assumed that life expectancies would continue to improve over the coming decades. On that basis, the Government Actuary’s Department calculated that state pension age would need to rise to 68 by 2041 to make sure no-one spent more than one third of their adult life in retirement. Responding to the report, the DWP indicated that it planned a slightly tougher schedule, reaching 68 by 2039, though it did not change the law at that stage. This is seven years ahead of the schedule currently set out in legislation.
However, since the last review was undertaken, ONS has published population estimates as at 2016 and 2018, which reveal lower life expectancies than previously thought. For example, the 2014-based projections suggested that a 66 year-old woman today could expect to live, on average, to around 89 (based on significant continued improvements in life expectancy) whereas the 2018-based projections now expect the same woman only to live to around 87.