- Alan Smith considers future increases in the state pension age
From an economic viewpoint, for most of us there are three stages of life. Up to the age of about 20, we are supported by our families, with grants from the state. Then, for the next 40 to 50 years, we work, using our salaries to finance our current expenditure and to make provision for the future through insurance, pension schemes, and other savings. Finally, we retire and live on these savings and the state retirement pension, a universal benefit that helps keep us as one nation.
In recent years, it has become clear that the combination of a declining birth rate and increased longevity has led to a significant increase in the proportion of older people. It is predicted that by 2035 over half the adults in the UK will be over 50 years of age. The proportion of the population aged 65 and over, 17.7% in 2014, is predicted to be 23.3% in 2034.
The state pension age is currently 65. It is planned to rise to 66 by 2020 (Pensions Act 2011), to 67 between 2026 and 2028 (Pensions Act 2014), and to 68 between 2024 and 2046 (Pensions Act 2007).
The Centre for Social Justice has produced a report: Ageing Confidently—Supporting an Ageing Workforce (August 2019). This may be downloaded free of charge from the website: www.centreforsocialjustice.org.uk/library/ageing-confidently-supporting-an-ageing-workforce.
This report recommends a number of ways of supporting older workers such as enhanced welfare support and increased access to flexible working and training. It goes on to advocate: ‘Provided that this apparatus of support is implemented, we propose an increase in the State Pension Age (SPA).’ The emphasis at the beginning of this sentence is mine. The suggestions for the state pension age are 70 by 2028 and 75 by 2035. The objective is to reduce the old age dependency ratio, the ratio of the number of people over 65 (the current state pension age) and the number of people between 16 and 64 (the current potential workforce): today it stands at 28.6% and is predicted to rise to 48% by 2050. Under the proposed changes to the state pension age, with appropriate changes to the ages in the definition, it would remain in the range 20% to 25% for the next 20 years.
A major problem is likely to be the separation of the typical retirement age from the state pension age. This would adversely affect those for whom the state pension would be a major part of their retirement income. In particular it would affect those for whom manual effort is an essential part of their job.
The particular query I would raise is the suggested increase in the state pension age from 70 in 2028 to 75 in 2035. Under this, someone born in 1958 would get the state pension at the age of 70 in 2028 but someone born in 1960 would get the state pension only at the age of 75 in 2035. This could cause resentment.
I should like to know the predicted values of the following variables for each future year until, say, 2039: What proportion of the year group would survive to reach the state pension age in force at that time and draw the state pension? What would be the life expectancy of someone about to start to draw his state pension?
There should be discussion on the minimum period before reaching one’s state pension age in which it would not be increased: my suggestion would be 10 years. Someone starting work at, say, 21 could hardly expect the then current state pension age to be fixed for him as part of the social contract but it would be unreasonable for someone a year away from his state pension age to be told that it had just been increased by two years.
It is mentioned in the report that increased employment of older people would contribute to the economy and that early retirement has a significant negative impact on the cognitive abilities of people in their early 60s. On the other hand, many of the newly retired do voluntary work, including care of grandchildren, which contributes to the economy, albeit not measurably, and helps maintain their cognitive abilities.
This report is valuable because it raises reasonably early a problem that would be more difficult to tackle if left ignored. A warning should be taken from the system of financing university undergraduates. The proportion of each year group attending universities increased from c. 5% to c. 50% while relying on the same system of fees being paid by the state and maintenance grants being paid to undergraduates. This led to the system of student loans which is not generally considered to be totally satisfactory.