State pension age – planned rises thrown a curve ball by life expectancy drop

State Pension Age Rise - image of a heart monitor graph

Pensions

MoneyPlus Features Team

11th December 2015 at 1:01pm

The state pension age is rising. And it’s been doing so at a rapid pace.

However, according to recent figures shared with Telegraph Money, a planned rise to the state pension age to 68 could be delayed by 5 years due to unexpected falls in life expectancy.

If it is the case that life expectancy is falling, then the state pension age should also fall

The background

For what seems like donkey’s years, the age at which you can claim your state pension benefits has been 65 for men and 60 for women.

But large jumps in life expectancy have seen costs increase for the Treasury, which is paying some pensioners for more years in retirement than they spent paying National Insurance as workers.

This resulted in Government plans, based on recommendations from Lord Turner, to steadily increase the state pension age to 68 for both men and women over the next four decades.

From 2020, both men and women’s state pension age will be 66, increasing to 67 between 2026 and 2028, and then calculated on future life expectancy projections after that.

The current position

The current timetable, which at present will see the age rise to 68 by 2036, is based on the widespread expectation that life expectancy would continue to extend, however life expectancy projections from the Office for National Statistics (ONS), due to be published next month, are predicting a fall.

This prediction from the ONS is crucial in establishing the official age of retirement handed down by the state because the Government, in 2013, said that this would be calculated with a new formula that dictates we should expect to spend a third of our lives in retirement.

If the Government sticks to its word, the state pension age will instead be 68 by 2041 and would apply to anyone aged today between 42 and 48. This means people born in the late sixties and early Seventies could now be on course to get their state pension from 67 rather than 68.

Future direction

A decision will be made by the Government in 2017. It will then be reassessed every six years with the proviso that workers will be told of changes at least 10 years before they retire.

Steve Webb, a former pensions minister, said: “If it is the case that life expectancy is falling, then the state pension age should also fall. This was never meant to be something that was an upward ratchet. If it goes the other way, people should feel the benefit.”

A spokesman for the Department for Work and Pensions said: “State pension age will be reviewed each Parliament from 2017, taking into account the latest available life expectancy statistics and any other relevant data.”

Watch this space

The planned rise in the state pension age to 68 in 2036 will remain in place for the moment, but under the Government’s “third of life” formula and these fresh ONS predictions, it will be interesting to see if this position shifts.

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The information in this blog or any response to comments should not be regarded as financial advice and is based on our understanding in December 2015.