Cridland – what are the implications?
Mike Morrison, head of Platform Technical, AJ Bell looks at the result of the interim report on the State Pension Age from John Cridland
In the first part of this article series I looked at the State Pension Age (SPA) and commented that John Cridland was just about to report on the first review of the SPA, as promised by Government. This was indeed done in October 2016 with the publication of an interim report.
As an interim report it did not give a recommendation as such, however, it did give an indication of the issues that will shape future thinking in areas such as longevity, intergenerational fairness, changing working patterns and obviously, cost.
Longevity is perhaps the most important of these, with many of the other issues having to adapt to meet the changes – a collection of headline statistics from Age UK “Later Life in the United Kingdom” (October 2016) make for a scary read:
• 6 million people are aged 65 or over
• Over 1.5 million people are aged 85 or over
• There are more people aged 60 and above than there are aged under 18 (i.e. more than 15 million)
• The number of centenarians living in the UK has risen by 72% over the last decade to 14,450 in 2014
• UK life expectancies at age 65 are 85.9 years for women and 83.4 years for men (life expectancy increased by 1.5 years for males and 1.1 years for females between 2006-08 and 2011-13)
• By 2040, nearly 1 in 4 people will be aged 65 or over
• The proportion of the population aged over 75 is projected to double in the next 30 years
• Nearly 1 in 5 people will live to 100, including 29% of people born in 2011
It is now quite common to see newspaper headlines like: ‘Work until you’re 80’ (FT March 2016) or, even further, ‘Don’t expect to retire until you’re 100’ (The Telegraph 2015). Indeed, in many headlines, the idea of working until you die and never retiring is becoming more the aim for the future.
The idea of pushing back the retirement age can only go so far and indeed the report confirms that the UK already has the highest retirement age among OECD nations. From a purely practical perspective it is also important to consider health at later ages. Indeed the Marmot Review: ‘Fair Society Healthy Lives 2010’ showed that more than three quarters of the UK population do not have disability-free life expectancy as far as the age of 68. This adds to the difficult considerations of revising the state pension age – life expectancy versus healthy life expectancy.
This could be possible for some jobs and is often proposed as a future model of work – we will dip into periods of employment and non-employment, funding the former with what we earn and the latter with what we save. There are lots of examples today of people working well into their eighties.
However, there are jobs where this is totally unrealistic, for example, some manual jobs or high-stress roles with an early burn-out age. Manual workers might start work in their teens acquiring their full entitlement to the state pension at an earlier age than others who have gone on to further education. In this respect, the report has suggested the possibility of replacing the one-off state pension age with a more tailored approach – perhaps by counting the state pension ‘qualifying years’ as they commence. When the full entitlement has been done the benefit could commence if required, even if this is earlier than the state pension age.
Intergenerational fairness has also become a hot topic with the cost of the ‘triple lock’ at the centre of the argument. Is it fair that some of the most well-off pensioners get the benefit of the costly triple lock while younger generations (with their now lower numbers) have to fund this, presumably via increased taxation whilst also getting on with their own retirement saving?
Changing the state pension age has become a method of social engineering, as it defines working behaviour and patterns, the demand for state benefits and consequential tax policy. The problem facing ongoing Governments is that, with more people living longer and fewer people paying in, the goalposts have seriously been moved!
The discussions will continue and recommendations will be made, however, the Government must ensure that any changes are appropriately communicated to those affected so that they can plan for the change.