Call for evidence on state pension age changes as costs mount

The government is required to conduct periodic reviews of the state pension age, which it intends to raise to age 67 between 2026 and 2028, and then to 68 between 2044 and 2046.

A review in 2017, based on Office for National Statistics population projections using data from 2014, suggested that the second rise should be brought forward to 2039. 

The proposals have attracted criticism, with LCP partner Sir Steve Webb calling for a rethink following estimates suggesting life expectancy in decline. 

He argued that the latest evidence shows that men and women currently at pension age have a life expectancy two years shorter than previous estimates, and that the full impact of Covid-19 is not yet known.

Long-term projections still show life expectancy increasing, however, albeit at a slower rate than previous projections. Data from 2014 suggest a man aged 65 in 2047 was projected to live until 89.9 years, but 2020 figures put that age at 87.1 years.

For women, the projected cohort life expectancy of a 65-year-old in 2047 was 91.9 years using the 2014-based projections, and 89.3 years in the recent 2020-based projections.

The number of people of state pension age or over is expected to rise by 24 per cent over the next 25 years, from 12.1mn people in 2022 to 15.1mn in 2047.

The number of people aged 85 or over is expected to double over the same period, from 1.7mn to 3.3mn.

Though costs were kept largely in check throughout the 1990s as a result of slower growth in the average state pension award than gross domestic product per adult, the government spending between 3.3 and 3.7 per cent of GDP during this period, a combination of slow GDP growth and more generous awards given to ever more pensioners as a result of the triple lock has seen costs increase in the past several years.

The most recent estimates forecast state pension expenditure to rise from the current 4.8 per cent of GDP to 6.2 per cent in 2049-50.

The government commissioned the latest independent review to look at various issues pertaining to the state pension system. Conducted by Baroness Neville-Rolfe, it has been tasked with making recommendations on what metrics should be considered when setting the state pension age in future.

The review will consider recent trends in life expectancy, what metrics will enable costs and intergenerational fairness to be properly accounted for, and ask “whether it remains right for there to be a fixed proportion of adult life people should, on average, expect to spend over state pension age”.

“In conducting analysis and reaching conclusions, the independent report should have regard to both the sustainability and long-term affordability of the state pension and the views of organisations, individuals, and other interested parties,” Neville-Rolfe wrote.

The deadline for responses is April 25.