How many more years will YOU need to work to receive the State Pension? Two recent pieces of research show that the effects of increasing the age at which you can receive it are being felt unequally depending on your financial situation and gender; and – critically ­– that plans to further increase the age may be “blown out of the water” by expected improvements in life expectancy failing to materialise. By Tony Watts OBE

New analysis of population projections by consultants LCP has cast doubt on the government’s current plans to raise state pension age (SPA) to 67 by 2028 and age 68 by 2039

They say that: “If the government sticks to its policy of linking SPA to life expectancy (as projected by the Office for National Statistics), there would now be no case for raising pension age from 66 to 67 until 2051 – 23 years later than currently planned.

“This change alone would deprive the Treasury of at least £195 billion in planned savings on state pension expenditure but could give a state pension age ‘reprieve’ to more than twenty million people born in the 1960s, 1970s and early 1980s.”

In 2017, using population estimates from 2014, the Government Actuary’s Department calculated that state pension age would need to rise to 68 by 2041 to make sure no-one spent more than one third of their adult life in retirement.  Responding to the report, the DWP indicated that it planned a slightly tougher schedule, reaching 68 by 2039 – seven years ahead of the schedule currently set out in legislation.

However, since the last review was undertaken, ONS has published population estimates which reveal lower life expectancies than previously thought. LCP have taken these latest projections and re-run the Government Actuary’s calculations to see what they imply for state pension age.  The dramatic conclusions are:

• Any move from 67 to 68 would not be needed until the mid 2060s, rather than the mid 2040s as per current legislation, and certainly not by the late 2030s as planned by the government;
• The move from 66 to 67, which is currently scheduled to be phased in over a two-year period between 2026 and 2028, could be put back twenty three years to 2049-51.

What is happening at the moment in the workplace?

Those findings need to be placed alongside new research by the Institute for Fiscal Studies, on behalf of the Centre for Ageing Better, which has revealed that the latest increase in the SPA from 65 to 66 – which took place gradually between late 2018 and late 2020 – has significantly boosted the employment of both men and women, leading to 55,000 more 65-year-olds in paid work.

“But,” they say, “the effects were unequal. The reform led to an additional 7% of men and 9% of women staying in paid work at age 65. But in the most deprived fifth of areas, women’s employment rate at age 65 rose by 13 percentage points and men’s by 10 percentage points.

“In contrast, in the most prosperous areas, female and male employment rates at age 65 rose by just 4 and 5 percentage points respectively. This almost certainly reflects the greater need for income at older ages among those living in poorer areas.”

Overall by mid 2021, the male employment rate at age 65 rose to 42% and the female rate to 31%. Both are the highest seen since at least the mid 1970s and, at least in the case of women, very likely to be the highest rate ever in the UK.

Nevertheless, it remains the case that more than 90% of 65-year-olds (around 640,000 of them) do not change whether they are in paid work at age 65 purely because of the higher SPA. This is in large part because the majority of men and women have already left the labour market before their 65th birthday, while some others would have stayed in paid work even if the state pension age had remained at 65.

Emily Andrews, Deputy Director for Evidence at the Centre for Ageing Better, said that increasing the SPA has been proven to be an effective policy for extending working lives among the employed, but that: “With the SPA set to rise further, the government must get serious about meaningful support to help workless people in their 60s get back into paid work. Otherwise, this policy will further harm those who are already disadvantaged by an ageist labour market.

“And now is clearly the time to consider seriously what further financial support should be offered to those for whom work simply is not an option.”

Jonathan Cribb, an Associate Director at IFS and another author of the report, added: “Given that a quarter of people working full-time in their mid 60s want to work fewer hours, this suggests there may be an unmet desire for many approaching state pension age to be able to work part-time, or more flexibly, than they are currently doing. This large pool of untapped potential part-time employees could be an attractive source of labour to many employers.

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