Pensions  

Pension ages need a rethink as life expectancy falls

Pension ages need a rethink as life expectancy falls

The government should rethink its plans to increase the state pension age as life expectancy estimates showed a further decline, according to an industry expert.

Figures published today (January 12) by the Office for National Statistics, based on 2020 population data, showed a decline in life expectancy for those at the current state pension age (66) among both men and women.

According to LCP partner Steve Webb, this data reinforced the case for a fundamental rethink of the timetable for increasing state pension ages.

The government wants to raise the state pension age to 67 between 2026 and 2028, with a further rise to 68 between 2044 and 2046.  

However, a review of state pension ages in 2017 (which was based on ONS population projections based on 2014 data) has since suggested reaching a state pension age of 68 in 2039 – seven years earlier.

But Webb said today's data suggested this should be pushed back.

Former pensions minister and current LCP partner Steve Webb

He said the new projections suggest that for men and women currently at pension age, their life expectancy was now more than two years shorter than previously thought.  

Webb added that the full impact of Covid-19 had not yet been seen on long-term life expectancies.

Webb said: “The last review of state pension ages was based on data which is now more than six years out-of-date. Since then, life expectancy at pension age for both men and women has dropped by more than two years.  

“Such a dramatic shift in such a short space of time calls for a fundamental rethink of the government’s plans for increases in state pension age. With the move to 67 due to start in only four years, [the Department for Work and Pensions] needs to speed up its current review, as the case for rapid increases is simply not justified by the evidence”.

The government's dilemma is illustrated by the fact long-term life expectancy is still expected to increase.

Baby boys born in the UK in 2020 are expected to live on average to age 87.3 years, while girls to age 90.2 years.

But boys born in 20 years time are expected to reach 90.1 years old while girls will reach 92.6 years.

By 2045 the chances of reaching 100 are expected to rise to 1-in-5 for boys and 1-in-4 for girls. Boys born in 2020 are given a 1-in-7 chance of reaching 100 while for girls it is 1-in-5.

Older population set to boom

The data found the number of over-85s was expected to nearly double over the next 25 years from an estimated 1.7m in 2020 to 3.1m by 2045, accounting for 4.3 per cent of the total population.

There have been concerns that the state pension age increases in fact may not be enough if the population were to age.

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “While state pension age is under review, auto-enrolment reforms have been mooted and we await the introduction of a social care plan there are no quick policy fixes and people must do all they can to boost their pensions and investments so they are as prepared as they can be.”