The State Pension matters and the State Pension Age matters a lot more than people who work in pensions imagine. It matters to the public as SPA is the anchor for their dreams of packing in work. Unfortunately, it looks like a lot of people are working to the old SPA of 65 (or perhaps finding employers who still see 65 as the end of the line). This might explain the sharp spike in absolute poverty as people approach the current SPA (66) which becomes 67 in 2028
Absolute poverty spikes prior to SPA
And, as this blog never ceases to remind itself, the state pension accounts for the majority of the retirement income of the nation, it really is the people’s pension
So when the state pension misses the third lock and gets uprated at 3% not 10%, people feel short-changed. When it is revealed that the DWP is hopelessly behind on its admin and missing millions in payments to vulnerable widows , there is an outcry. And when a generation of women find themselves missing out on years of pensions that they anticipated (but failed to read the small print), then there is this lot to answer to!
The latest threat to the State Pension Age is the review commissioned earlier this year and being carried out by Tory stalwart Baroness Neville-Rolfe.
Baroness Neville-Rolfe
The non-governmental authority that is Steve Webb, wasn’t slow when calling her arrival on the scene as “political”. What he meant is pretty obvious, the State Pension Age is one of the levers the Treasury has left, to control the benefits budget. Convince yourselves and then the public that it can be pushed back and you can pay a couple of years of 10% increases to the state pension and still balance the books. But if – as a lot of private sector actuaries argue – the state pension increase to 67 should actually be cancelled, and you have a big hole in your budget. It takes a lot of tax on fags and beer to pay for a year’s state pension.
I am simplifying for effect, so perhaps I ought to reintroduce social media’s favorite pension non-actuary, David Robbins, who was last employed on this blog, explaining Liz Truss’ now not so secret pension agenda (at least in her pre-ministerial days).
David is currently holed up with Covid, so I will do my best to do his research justice, it is beautifully curated on twitter – these are edited highlights.
Why we are not going to get a Covid dividend in our state pension
There are a lot less pensioners in Britain than there would have been had it not been for COVID. Less pensioners =less pensions =less strain on the Treasury.
But…we continue not to fertilise as we used to do, low fertility = low support ratio = not enough people working to pay the bill for older people’s pensions = bad news.
Fertility is the Treasury’s “get out of jail card”. If all other indicators point to keeping the state pension age as is, the falling support ratio is the Treasur’s “top trump”.
But it’s still going to be a tough call… a huge spike in inflation (2022-24) and promises made to meet them via the triple lock = big problem for Treasury
This adds up to a lot for Lucy Neville-Rolfe to think about!
David Robbins wanted to lift the curtain and find out what was going on at the DWP. But he was thwarted in his public. His Request for information was turned down. So he has had to explain the options DWP and the Treasury’s Government Actuaries have in front of them
3)But delaying the rise to 67 = paying pensions to >800k 66 year-olds a year. Even if HMT could rely on not having to pay pensions for as long, the £ would still be front-loaded. (NB: 1964 saw the 2nd most live births in the past 100 years. Those still alive turn 66 in 2030.)
— David Robbins (@David_J_Robbins) August 10, 2022
5)In that case, Labour will have to decide whether to repeat their 2019 manifesto pledge to freeze SPA at 66 (neither reaffirmed nor disavowed under Starmer) when the rise to 67 is around the corner (so more salient for those affected but costs £ in coming Parliament).
— David Robbins (@David_J_Robbins) August 10, 2022
7) Here’s what the law says ministers must ask Govt Actuary.
In practice, this has meant looking at when SPA would reach 68/etc if the rise completed in the year when new retirees could have expected, on average, to spend the specified % of adult life over 67/etc. pic.twitter.com/0NGeECIiD6— David Robbins (@David_J_Robbins) August 10, 2022
9) Originally (2013), the specified % was going to be “up to 33.3%” (which meant: always meaningfully <33.3%). At the last review, “up to 32%” was also modelled. This would have taken SPA to 68 in 2030, based on the life expectancy assumptions used at the time.
— David Robbins (@David_J_Robbins) August 10, 2022
11)In the event, they pencilled in 68 in 2039 (two years sooner than under “up to 33.3%”), while saying Govt would aim for “up to 32%” in the long term.
— David Robbins (@David_J_Robbins) August 10, 2022
13)If Govt doesn’t want to let the provisional timetable for SPA=68 slip by 17 years, it can set a lower trigger for increases. “Up to 31%” would see SPA reach 68 in 2044. “Up to 30%” gives SPA = 68 in 2033.
— David Robbins (@David_J_Robbins) August 10, 2022
15)The new PM will have to sign off any decision. In 2009, one of the candidates, Liz Truss, co-authored a pamphlet which said SPA should be 68 by 2018. But that was before she was an MP, never mind a prospective PM. pic.twitter.com/McvU5txrS1
— David Robbins (@David_J_Robbins) August 10, 2022
17)The review is positioned as “SPA only”, with Triple Lock/etc out of scope. But future spending levels depend on the combination of “how much?” and “from what age?” (though indexation decisions of course affect existing pensioners who will be protected from any SPA rise).
— David Robbins (@David_J_Robbins) August 10, 2022
Thanks David. Thanks Steve Webb and thanks Andy Young for helping me understand these things. It seems to me, that there are many ways to cut the cookie – but only one cookie. Let’s hope that what the Treasury, DWP and Lucy Neville-Rolf, finally arrive at, is a cookie that’s dished out as fairly as it can be.
But for people who think that the pain of Covid will produce a survivor-dividend in a bigger state pension , I fear you’ll be disappointed.
