Collecting your state pension from age 65 has become a thing of the past for hundreds of thousands of workers as the government continues to push back the normal retirement date in line with longevity. Jenna Towler reports…
As pensions minister Steve Webb unveiled his reforms of the state pension to parliament last week he also confirmed the state pension age would continue to increase in line with life expectancy.
Speaking during a parliamentary debate on the issue he confirmed the state pension age – currently 65, increasing to 66 for men and women in 2020 and 67 by 2028 – would be linked with longevity, but that no further increases would occur during this parliament.
“The government will carry out a review of the state pension age every five years, based around the principle that people should maintain a specific proportion of adult life receiving the state pension,” according to the white paper.
Retirement date… TBC
The white paper outlining the detail of the plans said the way this would be calculated would include reference to an independent panel’s view, similar to the way the Bank of England sets interest rates, and a formula.
Pension consultant Hymans Robertson said this was a positive step, but uncertainty remained for people under 55 – they still do not know when they will get their benefits.
Partner Steven Baxter said: “Rather than relying on objective measures, state pension age will be driven by the Government Actuary’s Department view on how life expectancy will change over time and how the independent body takes into account crucial additional factors.
“Socio-economic variations determine life expectancy, and in recent years the gap between how long the ‘haves and have nots’ will live has grown markedly.
“Our data shows that the ‘healthy rich’ currently receive the state pension for twice as long as the ‘unhealthy poor’. The formulaic approach to life expectancy will penalise the poorer, shorter-lived members of society, as they are likely to see the proportion of life spent in receipt of the state pension decline over time - yet they are also those who rely most on the state pension.
“The independent body will need to take these concerns into account, as well as the wider economic backdrop and the affordability of the state pension.”
Keeping it in proportion
Baxter explained that, when the state pension was first introduced as a means-tested benefit in 1909, about 9% of an adult’s working life was spent in receipt of the state pension. He added that, for the generation reaching state pension age today, that figure had trebled to more than 31%.
“In the white paper the government have described a system for linking state pension age to life expectancy, and have promised certainty via the limited reviews of state pension age (one per parliamentary sitting) and a minimum of ten years notice for any changes.”
However, he warned the factors on which the decisions will be made – the views of the Government Actuary on very long term longevity prospects and the stance of the independent body – are “two highly subjective factors”.
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Industry Voice: Scottish Widows pension expert Robert Cochran and economist Andrew Scott discuss the future of employment and income, in episode three of Scottish Widows' podcast series.
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