The government’s review of the state pension age will explore whether it should automatically increase in line with rising life expectancy, potentially pushing the state pension age up to 70.
Launched in August, the review into the state pension age will assess the "merits" of implementing automatic adjustments to strengthen government finances, as well as looking at how the state pension age can manage “the long-term sustainability of the state pension”.
The government has set up a “call for evidence” as part of it, encouraging individuals and organisations to give their views. If you want to have your say on possible changes to the state pension age, you’ll need to be quick as the deadline to respond is 24 October.
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Dr Suzy Morrissey, who is leading the review, notes that the impact of decisions around state pension age are “far-reaching”.
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She comments: “Most of us will expect to receive at least some state pension once we reach state pension age.
“I have been asked to make recommendations on a framework that the secretary of state can use when considering future state pension age arrangements, in light of the long-term demographic pressures the country faces.”
The state pension age is currently 66 for men and women. It is due to rise to 67 between 2026 and 2027, and to 68 in 2044 to 2046.
The review will examine the experience of other countries that already automatically link payments to life expectancy, including Denmark, which recently raised its retirement age to 70 – this will kick in by 2040.
Denmark has tied the official retirement age to life expectancy since 2006 and is one of nine OECD countries to do so.
David Pye, a client consulting director at the financial services consultancy Broadstone, calls the review “a critical step in laying out the long-term future of this hugely important core benefit for retirees to aid their individual planning”.
He adds: “With an ageing population, previous governments have almost exclusively used an increasing state pension age to control costs – especially at a time of creaking public finances. If the age is increased or the amount provided is reduced or means-tested, it will reiterate the need for urgent reform in the private savings landscape to ensure adequate incomes at retirement.”
In July, the government revived the Pensions Commission in a bid to tackle the “retirement crisis that risks tomorrow’s pensioners being poorer than today’s”. It warns that too many working-age adults (45%) save nothing at all into a pension.
What is the state pension age review?
This is the third state pension age review. The second one was published in March 2023 by Rishi Sunak’s Conservative government.
By law, the government must review the age at which people can claim the state pension every six years.
The current review launched a call for evidence in August. Anyone who wants to respond must do so by 24 October.
Responses, which should address questions set out in the call for evidence, can be emailed to Independent.StatePensionAgeReport@dwp.gov.uk or sent by post. There are more details on gov.uk.
Morrissey comments: “My report must include the key factors government should consider in determining state pension age for future decades. This includes the merits of linking state pension age to life expectancy, the role of state pension age in managing the long-term sustainability of the state pension, and the international experience of automatic adjustment mechanisms for making decisions about state pension age.”
The report will also look at fairness between generations, as well as the groups of people, regions or nations that may be most impacted by changes to the state pension age.
In addition to Morrissey’s report, the Government Actuary’s Department will prepare a report examining the latest life expectancy data, providing advice on the proportion of adult life in retirement and whether the current legislative timings for the state pension age rising to 68 should change.
The government will consider both of these reports when deciding the state pension age in future; however, it does not have to accept any of the recommendations.
Will the state pension age rise?
Changing the state pension age is an emotive issue. Workers are often dismayed when the age goes up and they have to work for longer before they can claim the state pension.
It’s also a contentious one. The Women Against State Pension Inequality (Waspi) group has been campaigning for years about how a badly-communicated increase in the state pension age impacted many women born in the 1950s, leaving them little time to prepare financially.
The review could agree with the current timetable at which the state pension age will rise to 67 and then 68. Or, it could suggest the increases are accelerated (or possibly slowed down). It may also recommend further age increases, such as to 69 or even 70.
And, as mentioned, it could suggest a new mechanism is put in place, automatically hiking the state pension age whenever life expectancy improves.
In May, Denmark passed a law giving it the highest retirement age in Europe, raising it to 70 by 2040.
The Danish approach caps the amount of time someone can spend claiming state support, legislating that an average of 14.5 years should be spent in retirement. This means the retirement age rises by one year for every year life expectancy increases.
However, experts say bringing in automatic state pension age increases linked to life expectancy could cause “chaos” to people’s retirement plans, while there could be a steep rise in poverty and inequality among older people.
Steve Webb, partner at pension consultants LCP and a former pensions minister, comments: “Having a completely automatic formula to move from changes in life expectancy to changes in state pension age could cause chaos for people’s financial planning.”
Catherine Foot, director of the Standard Life Centre for the Future of Retirement, adds: “Using average life expectancy as the yardstick with which to determine the state pension age inevitably increases inequality and poverty among the pre-retirement population, since it moves the state pension age further away for people who have fallen out of work and are struggling to get back in.”
Regardless of any mechanism to link the state pension age to life expectancy, there will be temptation for the review to suggest some sort of changes to try and reduce the ballooning cost of providing a state pension in this country.
According to the Department for Work and Pensions, forecast expenditure on the state pension in 2025-2026 is £146 billion. Accounting for inflation, this figure has increased by 19% over the past 10 years and 70% over the past 20 years.
Stephen Lowe at retirement specialist Just Group comments: “As a result of rising longevity and dropping birth rates, it is estimated that a quarter of the UK’s population will be aged 65 or older by 2050. This means the burden of funding the state pension will fall on a shrinking proportion of working people.
“If the government wants to avoid increasing taxes or means-testing the state pension then it may have to look at options either to increase the age at which people receive the state pension or to moderate the amount paid.”
The state pension triple lock, which guarantees the state pension is uprated annually by inflation, earnings or 2.5% (whichever is highest), is forecast to cost a massive £15.5 billion a year by 2030, according to the Office for Budget Responsibility.
Lily Megson-Harvey, policy director at My Pension Expert, says the state pension age review must “carefully consider the impact that raising the age further could have on millions of savers and how to help people engage with their pension options”.
She notes: “Not everyone can simply work for longer. It could also disproportionately impact those who are already struggling to save enough and often rely more heavily on the state pension for financial security in retirement.”
The Standard Life Centre for the Future of Retirement echoes this point. Its research shows that a quarter of people in their early sixties now live in poverty, and many more are unable to work due to poor health or caring responsibilities. About 40% of 60-65 year olds have less than £3,000 in savings, and will struggle if they have to wait longer for the state pension, it argues.
Foot comments: “Raising the state pension age may ease pressure on the public finances in the short term, but it risks deepening inequality and hardship for those least able to work for longer. The review must strike a fair balance between sustainability and support, recognising the realities people face and protecting the financial security of those approaching retirement.”
