The seemingly inexorable rise in the state pension age may finally be halted by unexpected falls in longevity. Figures shared with Telegraph Money and published yesterday show that if the Government sticks to its word, it will have to delay by five years a planned rise in the state pension age to 68 in 2036.
The new date of 2041 would apply to anyone aged today between 42 and 48. Those aged 43 to 47 would get their pension a full year earlier. Younger generations would also benefit because the rise to 69 would begin in 2054 rather than 2047, affecting those aged 30 or under.
The reason is simple. Life expectancy, which has risen for centuries, appears to have stalled, fallen a little, and may fall further.
This is crucial to 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 working lives in retirement.
The widespread expectation was that life expectancy would continue to extend, requiring rises in the state pension age to be brought forward. Gordon Brown’s Labour government had already set out a timetable of rises, which included 68 by 2048, which was accelerated to 2036 by the Coalition’s formula.
Last year, the Office for Budget Responsibility, the Government’s independent forecaster, suggested a “worst case scenario” in which the state pension age could reach 70 as early as 2037 and 71 by 2040.
It all depends on the latest forecasts from the Office for National Statistics for life expectancy. Towers Watson, one of Britain’s largest pensions consultancies, has used ONS methodology and data to pre-empt those projections, which are due to be published next month.
These forecasts inform decisions on the state pension age – and the age at which you can access your private pension, which is to be pegged 10 years below the state age.
The Government will make a decision in April 2017 on the ages, and review it again in 2023. It must give workers 10 years’ notice of changes. There could still be interference. David Robbins, a senior consultant at Towers Watson, said: “The Government might be tempted to go for a faster increase anyway.”
How pension age will change
At it stands, the age will rise from 65 to 66 between 2018 and 2020, then to 67 between 2026 and 2028. These are unlikely to change. It would be the 68 and 69 ages that would change, as shown above. The rise to 70 would see the biggest delay, moving from 2061‑63 to 2068‑2070, but much can change before that.
Here is the timetable from before compared with the new projection, below: State pension age: look up when you will retire
New state pension ages, in theory
Source: Towers Watson
State pension ages, in theory
Why would longevity fall?
The Towers Watson data suggested that women aged 67 in 2035 were now expected to live to 90.8 rather than 91.6. For men it would be 88.8 rather than 89.1. These small moves have a big impact on retirement ages.
The reasons for this are something of a mystery. Mr Robbins said the data was volatile and could be moved in a single year by an ineffective flu vaccination programme. But over the longer term some experts have argued that obesity could weigh on lifespans.
What is clear is that the numbers of annual deaths fell rapidly from 1990 to 2010 but have since plateaued.
How do you plan?
No one can guess future life expectancy accurately and the dates may change. We are also easily deceived by the numbers, according to Mark Stopard of Partnership, a retirement firm.
He said: “The life expectancy for a woman at 65 is 89 but there is a 55pc chance of her living beyond this age.
“Those who have planned only for this age could potentially face poverty in late old age, which is a prospect that horrifies most people.”
He said it underlined the need for a decent level of guaranteed income – from the state pension, annuity or final salary pension – at least to cover the basics.
The company also surveyed those approaching retirement to ask them how long they expected to live. The chart below shows the results versus the statistical averages of how long they will actually live.