Perhaps the least surprising announcement in today’s Autumn Statement is that state pension ages are to rise again.
State pension is a key determinant of when people retire, with most annuities being purchased by men at age 65 and historically by women at age 60 - although that is now rising in line with changes to women’s state pension age.
While younger people will not relish the changes, keeping the proportion of adult life spent in retirement constant is the only way to ensure that sufficient numbers remain in the workforce to pay the taxes that support state pensions. The government has signalled that only about one-third of adult life should be spent in retirement.
Pension professionals have often complained about the short-term nature of pensions policy compared to the long-term nature of pension provision. Today’s clear direction assists financial advisers in explaining to their clients the impact of rising longevity and the need for realism.
The one concern I have is whether state pension age is rising fast enough. Office for National Statistics data suggest that life expectancy at retirement age is rising by about one year in every five. However, the changes announced earmark longer-term increases in the state pension age by about one year in every ten.
The government can of course take a less precise view of longevity improvements than insurers can. The government has the safety net of being able to raise more taxes to support its spending.
Insurers have to take a more accurate and conservative view of longevity improvements because they have no recourse to the taxpayer if they under-estimate improvements. The ‘annuity pension age’, let’s call it the APA, will continue rising in line with the underlying data.
Life expectancy at retirement is rising by one year in every five, but today’s changes earmark increases in pension age of one year in every tenAdvisers should therefore encourage their clients to plan for a one year in every five improvement. The APA will be nearer 70 by the mid-2030s rather than the state pension age of 68 which government has signalled today.
John Lawson is head of policy at Aviva.
