The inclusion of a Pensions Bill in the Queen’s Speech could be the first step towards a much faster rise in the State Pension Age, according to Towers Watson.ÂÂ
The coalition Government has said that, subject to the outcome of a review, the Bill will revise the current timetable for increasing the State Pension Age but that it will not start to rise above 65 until at least 2016 for men and 2020 for women.
John Ball, head of defined benefit consulting at Towers Watson, said: “The new Government has only limited its freedom of manoeuvre for people in their fifties and sixties. While attention has focussed on how soon the State Pension Age will rise to 66, the bigger question is what happens afterwards. Rather than rising to 68 by 2046, we could see it going up further and faster. In Ireland, it is set to reach 68 by 2028.”
Official projections of life expectancy have been revised dramatically since the current timetable was drawn up. John Ball said: “The logic used to justify a State Pension Age of 68 by 2046 could now justify a State Pension Age of 70 by then – and that’s before you factor in any need to make state pensions cheaper because of what has happened to the public finances.”
Men in their sixties and women aged 55 or over would not be affected by the Government’s plans but around four million people currently expecting to receive state pensions at 65 could get them up to a year later.
John Ball said: “Increasing State Pension Age by up to a year for so many people sounds like a dramatic step, but average life expectancy has increased by almost two years since it was decided that nothing should change until 2024. For people now in their fifties, a higher State Pension Age will only limit the cost to taxpayers of higher life expectancy, not remove it – though there would be an extra gain to the public finances if people work and pay taxes for longer. Younger groups may bear more of the brunt of longevity improvements themselves, with a larger share of their longer lives spent in work rather than retirement.”
The promised review of State Pension Age could also establish an expectation that it will continue rising for as long as life expectancy does. John Ball said: “The further into the future you go, the more any timetable can only be pencilled in – after all, if the current timetable only lasted four years! While nobody in their thirties can have much confidence about what their State Pension Age will actually be, it was always odd to assume that the State Pension Age would reach 68 and then suddenly stop. This generation of politicians could do their successors a favour by establishing a clear expectation that it will continue to rise if longevity continues to improve.”
Improved longevity does as much to the cost of final salary pensions as it does to the cost of state pensions. John Ball said: “Unlike the Government, employers who have been stung by the impact of improved longevity on their own pension costs cannot simply declare that people will have to collect their pensions later to make the sums add up. They are therefore increasingly looking to insurers and the capital markets to protect them against further unanticipated improvements.”
Meanwhile, new.research has revealed that 70 per cent of UK workers are planning to stay in employment past the standard retirement age.
