State Pension  

Raising retirement age is unfair, LGIM warns

Raising retirement age is unfair, LGIM warns

The government's plans to raise the retirement age are unfair because of the rise in ill health in later life, Legal & General Investment Management (LGIM) has warned

The rate of improvement in life expectancy in countries like the US and UK had slowed and the increasing prevalence of chronic disease was having a detrimental impact on the number of healthy years during retirement, the asset manager has warned

Recent figures from the Office for National Statistics showed that since the early 2010s there has been a "statistically significant" slowdown in the long-term improvement in life expectancy for England and Wales.

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Olivia Treharne, global equities fund manager at LGIM, said life expectancy tended to be longer for the affluent: in the UK at 65, life expectancy is 23 years for men with high incomes, normal health and healthy lifestyles but just 12 years for men with low incomes, ill health and unhealthy lifestyle.

She said: "This means the working poor are the most impacted by the rising costs of retirement, as they will contribute for the same number of years as those more affluent, while having fewer years to benefit."

In July last year, the Department for Work & Pensions (DWP) decided the increase in the state pension age should be brought forward to age 68 between 2037 and 2039 because of increases in life expectancy.

The change will leave 7.6m people £10,000 worse off, according to analysis by the House of Commons Library.

Raising the retirement age is one of four solutions at the disposal of the government, Ms Treharne argued.

This would slow the rise in dependency ratios and also shorten the number of pensionable years but those who have the greatest ability to work for longer may have least need to, LGIM argued.

Ms Treharne said: "In theory, raising the retirement age is the bluntest tool available for curtailing fiscal pressures.

"In reality, unhealthy lifestyles may make this unachievable and unfair."

Borrowing more and increasing taxes would be other two possible solutions for fiscal policy, but LGIM considered these to be less likely because the former would be unsustainable and the latter wasn't politically easy.

The government could try to pay for less, which is "effectively a form of rationing, whereby services are hard to access either through waiting times or reduced entitlement".

A more politically appealing option was trying to spend more efficiently, LGIM argued.

According to LGIM, healthcare providers were increasingly incentivised to manage the total cost of a condition as a way of improving outcomes at lower cost.

Health insurance companies have been taking a similar approach, reducing the cost of cover for those members that take active steps to improve their health such as visiting the gym, it added.

Mr Treharne said: "We see compelling opportunities amongst the solution providers, whether that be aiding those who can to save for their own retirement in the financials space, or in driving efficiency in the healthcare space.