A social media debate has broken out on twitter , prompted by this post from LBC
Ministers ‘planning to raise the pension age to 68 by the mid-2030s’ in blow to millions https://t.co/fCr4Y6UJ0d
— LBC (@LBC) October 5, 2022
The debate focusses on the Government’s well-flagged intention to link the state pension age to the replacement ratio of younger to older people, rather than the third of our adult lives rule of thumb (see below) – the story was “broken” in the Sun
The story is linked to Liz Truss through a statement made to Sky News.
“You’re asking me to speculate about all kinds of decisions that haven’t yet been made.”
She added: “We are facing a very difficult international situation, a slowing global economy, so yes I will do what it takes to fix those issues.”
Supporting evidence is supplied by Steve Webb and LibDem pensions spokesperson Wendy Chamberlain who claims that “Liz Truss has completely lost the plot on this“.
In my view, the decision to push back the state pension age was taken some time ago and the appointment of Lucy Neville-Rolfe, now Cabinet Secretary, to deliver the news, broke any pretence that the decision was “independent“. The decision is “politically correct” as the Treasury needs to bank the gains to help restore market confidence, but it is grounded in good economics.
The arguments for and against
There have been two turning points in trends in life expectancy in England in the past decade. From 2011 increases in life expectancy slowed after decades of steady improvement, prompting much debate about the causes. Then in 2020, the Covid-19 pandemic was a more significant turning point, causing a sharp fall in life expectancy, the magnitude of which has not been seen since World War II. – the Kings Fund
This is the argument pursued by LCP and Partner Steve Webb, who stick with the rule that we we should be in retirement a third of our adult lives. So with a life expectancy of 90 with work from ages 21-67 and retirement 67-90 you very roughly get today’s numbers.
To keep “boomers” to this rule we would want the state pension age to come down rather than go up and that this is based on fairness to those due to retire at 67 from 2035 – it might even mean reducing the state pension age for those like me, due to reach state pension age between now and 2035.
The economic argument for pushing back the state pension age is based on two things
- the reduction in the working population due to lower immigration (Brexit linked)
- the decreased fertility of a group of women whose children will need to support boomers.
But the next government will have to look at it and longevity is not the issue (if we kept the same longevity threshold, the increase to 68 could go back). Fertility and lack of immigration are. And lower productivity (the OBR downgraded this hugely in July and that costs a lot).
— Prospect Pension (@ProspectPension) October 9, 2022
There may be a political argument along the lines of “if you want lower taxes and uprated benefits – you are going to have to work longer and harder“, which plays to the current growth narrative. But Truss and others can argue that this is coincidental and not the main driver.
Is this a news story?
The review of the state pension age is not a news story. It’s ben well flagged and reported on this blog and elsewhere many times. That Baroness Rolfe might report before the end of this year would be news. This may mean that there is an urgency in getting the bad news out there that was not there prior to recent political events.
David Robbins reminds us that things are already moving fast.
Baroness Neville-Rolfe submitted her report to DWP last month, before returning to government. Don’t know if GAD report also ready, but this could be done quickly. So they can announce soon if they think it will help settle markets.https://t.co/mOHbeyyMZy
— David Robbins (@David_J_Robbins) October 10, 2022
But this is only news at the margin, the impact of any decision will not be for at least a decade hence, no one seriously doubts that the SPA will move backwards sooner.
What would be news is if the SPA changes before 2035 and – more importantly – if we have it decided that we can’t afford the triple lock. The change to SPA is unlikely to be brought forward but the triple lock looks more fragile with every tick up in the long dated gilt rate.