State Pension Age
11 January 2022
In December the Department for Work and Pensions (DWP) launched a government review of the future State Pension Age (SPA). And on the 7th January that announcement was updated to include the “Terms of Reference” to be used in that review.
At first glance this exercise might appear to be of limited interest to employers, yet it is worth noting that the SPA continues to influence many decisions around the structure of employee benefits provision, including (of course) company-sponsored pension scheme arrangements.
Reasons for the review?
The Pensions Act 2014 requires the government to regularly review the State Pension Age, and the latest review must be published by 7th May next year (2023).
The aim of the review is to consider whether the rules around pensionable age remain appropriate based on the latest data and evidence.
Now State Pension Age has long been a major news story, not least because of the lengthy debate around increasing the SPA for women to match that of men. That particular milestone has now been achieved, and the current debate centres on how quickly the State Pension Age should be increased to cater for the rapidly ageing national population.
State Pension Age is currently 66, and two further increases are already set out in legislation. There is a gradual rise in SPA to age 67 for those born after April 1960, and a further gradual rise to age 68 for those born after April 1966. The last review of SPA concluded that the government should consider whether the increase to age 68 should be accelerated and introduced earlier.
For those wishing to check their own State Pension Age, please visit this link on the government’s website (where it is also possible to request a forecast of your State Pension entitlement too).
So what are the factors that the review will consider?
The terms of reference document sets out the various items for consideration. And two of the most significant issues are changes to life expectancy and the growing financial cost to HM Treasury.
As we reported in March 2020, increases to UK life expectancy have slowed dramatically in recent years. Indeed the author of the 2020 “Health Equity in England” report – Sir Michael Marmot – said at the time:
"Since the end of the First World War, life expectancy in England and Wales increased about 1 year every 4 years – about 23 years in 90 years. In 2010 that welcome improvement began to slow dramatically. By 2017 it had ground to a halt in England and life expectancy had actually declined in Scotland, in Wales and among men in Northern Ireland."
Of course the findings of that report were published before the challenges of the Covid-19 pandemic were fully understood or allowed for in modelling. And with the UK passing the tragic milestone of 150,000 Covid-19 related deaths last week – the majority of which are from those of higher ages across the nation – it’s likely that this will have further reduced the increases in life expectancy being recorded.
It does however appear that life expectancy is still generally on the increase – but at a far lower rate than previously experienced. More recent research by The King’s Fund highlights that life expectancy now varies by up to a decade between the richest and poorest areas of the nation, with the growth in life expectancy also significantly favouring those living in better-off postcodes.
Yet as a general national trend life expectancy increases appear to have slowed, which could suggest the need to accelerate the move of SPA to age 68 has now eased.
This new reality may well be offset by the economic challenges facing the United Kingdom in 2022 and beyond.
Two long years of pandemic challenges and restrictions have resulted in record levels of state support being needed to see the economy safely through the challenges of Covid-19. The national bill for that support will take many years to repay, and there are also the economic uncertainties of Brexit to face too.
The Treasury is therefore likely to welcome an early increase of SPA to age 68, as that will reduce (or at least delay) additional pension costs to the state. This is a genuine and valid concern given that state pension payments are such a huge and growing slice of national spending each and every year.
Actions for employers
The above factors – and others – will no doubt be considered fully in the months ahead.
Yet regardless of the actual date of implementation, we do already know that a State Pension Age of 68 will be the norm in the not too distant future. Of course since the abolition of the Default Retirement Age in 2011 this has less direct impact on employers, yet SPA remains a significant influence in how employees plan for their future, and still also often shapes the structure of benefits offered by employers too.
So employers need to recognise the continued upwards trajectory of the SPA, and ensure that all their benefits offerings and any pensions guidance allow for this new reality.
For more information on any of the above topics, please speak to your usual Howden Consultant in the first instance, or visit our website for other contact options.
Steve is Head of Benefits Strategy, Howden Employee Benefits & Wellbeing, and is an award-winning thought leader on Pensions, Employee Benefits, and Human Resources issues. He is occasionally accused of making Employee Benefits interesting.