The growing problem of funding the current state pension increases illustrates the need for the government to take a long-term view of pensions policy, Aegon’s pensions director has said.
In his Autumn Statement in November, chancellor Philip Hammond committed to keep the triple lock on the state pension in place until 2020, but made no promises beyond that.
The triple lock guarantees annual pension increases at the highest of earnings, inflation and 2.5 per cent.
Aegon's Steven Cameron said meteoric improvements in longevity meant the 2.5 per cent guarantee was unsustainable.
He said: “Life expectancy has increased by 13.5 weeks per year for men since the early 1980s and median life expectancy is now 86 for men and 89 for women.
“These increases have put pressure on the affordability of the state pension and it now looks almost certain that the triple lock will not survive beyond the end of this parliament.”
Mr Cameron said dealing with longevity would be the major focus of former director-general of the Confederation of British Industry John Cridland’s final report on the future of the state pension, due to come out in 2017.
He said: “This struggle to reach a balance of policies which work for different areas of society is likely to be a feature of the year and we would encourage the government to take a long-term view when thinking about these issues.
“While many of today’s pensioners are relatively well off, this is often to do with provision of generous defined benefit pensions, which fewer will benefit from in the years to come,” he said.
On the bright side, he said increased longevity, along with pension freedoms, had created new opportunities for financial advisers.
“People are having to provide for longer retirements and take greater personal responsibility for their savings provision so there’s a clear place for firms that can come up with products and advice services which meet this demand.
“Couple this with the introduction of the pension freedoms and the huge range of choice but also complexity people now have at retirement and there is a fantastic opportunity for financial advisers.
“If 2016 is anything to go by then it will be another busy year for the industry but the overall trends shaping the market give a lot of cause for optimism,” he said.
james.fernyhough@ft.com
