Pensions are in the news again and the FT’s lead story today is about the State Pension Age. The State Pension is more newsworthy than any other pension because it dwarfs all others in coverage and in the impact it has on public finances. People working in private pensions are prone to forget that to much of the general public , the state pension is their pension.
The party line
“The government is required by law to regularly review the state pension age and the next review will be published by 7 May.”
That is all the DWP will tell us for sure about whether Lucy Neville-Rolfe’s review of the state pension age (SPA) will result in it bringing forward a rise to 68 or not.
But the Financial Times are running news of leaked information on the SPA its lead story in both the print and digital front-page.
The FT only does that when its sources are strong . Well done Jo Cumbo for getting the scoop (or leak – depending how you see these things).
The state pension age, currently 66, is due to increase to 68 after 2044. The government wanted to bring this forward to 2037-2039. The FT reports that “officials” have told it that the decision to do this will be deferred beyond the next election.
Timing is all
There are two local issues , both featured on this blog, which may have influenced the decision
- The £1.1bn pa pension giveaway resulting from scrapping the Lifetime Allowance and increasing contribution allowances
- The riots in France , where politics and society is in torment over raising the state age from 62 to 64.
Personally , I don’t think we’d see riots in the UK, but I do think that bringing forward the state pension age would be considered unfair on those with lower life expectancies, blue collar workers and those who do not or cannot work.
If the decision is being taken for local “political” reasons, then it’s the wrong decision.
The Government are pointing to the slowdown in the increase of the nation’s longevity in the past few years as the reason not to implement change. Actuaries will point to the slowdown in fertility over the past five decades that means there are less people in the workforce able to meet the rising cost of pensions and benefits.
Willis Towers Watson published an excellent article last year which explained how the goalposts for moving the state pension age have been moved since reviews were first announced in 2013.
It concluded that
A flexible review process means that gloomier mortality projections need not keep the State Pension Age ‘lower for longer’.
On purely economic grounds, I suspect that the arguments for bringing forward the state pension age are stronger than maintaining the status quo.
This suggests that there is a degree of opportunism in leaving the SPA untouched.
A “not news” story? It’s a story with spin.
A story that announces that something will not happen in over 20 years time may make the news in the FT and feature on this blog, but it will not feature widely in the financial trade press who have more urgent matters to engage in, like the impact of tax changes on platform profitability.
But this does not mean this decision will not have short term consequences. If correct, the decision not to bring forward the state pension age will increase the liabilities of the state pension and put more pressure on the triple lock and on associated benefits such as pension credit. Steve Webb’s “waterbed” analogy is in play.
This feels like an official leak, planned to relieve pressure on Sunak and Hunt who are accused by Labour of feathering the nests of the rich. If it’s just the timing of the leak that is politically motivated then this is simply spinning the release. But if the Government has changed its policy for short term considerations, it will be accused of taking another kick at pensions as its political football.
It’s a story about what’s seen as a Government U-turn
The policy intention when the review of the state pension was announced was said to be clear
“They were gung-ho to raise the pension age,” a government insider told the FT. “But they got cold feet.”
But the evidence coming from the office of national statistics and confirmed by the actuary’s “Continuous Mortality Improvement” study, suggests that life expectancy is likely to be two years lower at 2050 for someone currently 65 than in 2017 when the last review was conducted by John Cridland.
It’s a story that will have consequences
Regardless of the SPA decision, the state pension bill is estimated to grow to around £148bn by 2027/28 from £110bn in 2022/23, according to the Office for Budget Responsibility.
And that rise of almost a third is going to be met by a generation largely deprived of much of the benefit of the defined benefit pensions system enjoyed by those retiring today, Those retiring from 2037 on are estimated to be relying on lower – albeit more inclusive, DC benefits.
For the long term consequences of the decision on the SPA, read the thread by David Robbins published on my blog last August where I argued that the Government was unlikely to yield to pressure and leave the SPA unaltered. It looks like I was wrong.
1)When the State Pension Age review process was established, HMG talked about SPA keeping pace with life expectancy. So will it rise more slowly now that projected life expectancies are lower? See my article. (Spoiler: unlikely) https://t.co/06r2LuYaVD
— David Robbins (@David_J_Robbins) August 10, 2022
David Gauke , speaking to the FT, has said that
“for the long-term sustainability of the public finances an acceleration of the increase in the SPA is almost “certainly necessary”.
The “not news” , reads like a political decision to me. It will be welcomed by many but it will come at a cost – I worry about that cost.
— Josephine Cumbo (@JosephineCumbo) March 25, 2023