State pension age outrage as new retirement age to 'push pensioners into poverty'

Linking the state pension to life expectancy would risk pushing more people into poverty, an expert has said at the outset of an independent review. Work and Pensions Secretary Liz Kendall has commissioned Dr Suzy Morrissey to lead a review into the state pension age (SPA).

The New Zealand academic will produce a report which will determine what factors the Government should consider when deciding any future changes to the SPA. As part of her review, Dr Morrissey will explore the merits of linking the SPA to life expectancy. The boss of a leading thinktank has warned using life expectancy as a yardstick to determine the SPA would increase poverty among those who have yet to retire.

In a call for evidence published on Monday (August 18), Dr Morrissey said she would examine Automatic Adjustment Mechanisms (AAMs) as part of her review.

These are predefined rules which automatically change set parameters based on demographics, economics or finances.

AAMs have been used to link the SPA to life expectancy in different ways in countries such as Estonia, Finland, Greece, Italy, the Netherlands, Denmark, Portugal and Slovakia.

Catherine Foot, Director of the Standard Life Centre for the Future of Retirement, warned that working until even the current SPA is not easy for everyone.

She said those experiencing the fastest-growing rate of poverty for any working-age adult age group is people aged 60-65, many of whom have fallen out of work due to ill health, caring responsibilities or ageism in the labour market.

The thinktank's director said: "Using average life expectancy as the yardstick with which to determine the state pension age inevitably increases inequality and poverty among the pre-retirement population, since it moves the state pension age further away for people who have fallen out of work and are struggling to get back in.

"To mitigate against that increase in inequality, a rising state pension age needs to be combined with active labour market policies that support people to remain in work and out of poverty in the years leading up to accessing their state pension."

Dr Morrissey has acknowledged average life expectancy in the UK at 66 is increasing, albeit lower than previous forecasts. She has also pointed to figures from the Office for National Statistics which show the number of people of SPA or over is expected to increase from 12.6 million people this year to 19.5 million in 2075.

Britain's sluggish economic growth, a rise in the number of pensioners and the Triple Lock have increased the cost of state pensions as a proportion of GDP.

The cost of the state pension as a percentage of GDP will reach 7.7 % by the early 2070s, which is around 50% higher than today, according to the Office for Budget Responsibility.

From next year the SPA will start to rise from 66 to 67 before a further planned rise to 68 between 2044 and 2046.

Denmark has tied its official retirement age to life expectancy since 2006. In May, the country's parliament adopted a law which will see the age rise to 70 by 2040.

The country effectively caps the period a person can spend claiming state support. It has legislated that an average of 14.5 years should be spent in retirement. That means the retirement age rises by one year for every year life expectancy rises in Denmark.

In 2017, the Government Actuary's Department (GAD) suggested the SPA would rise to 70 in the 2050s if 32% of a person's adult life is spent in retirement. The GAD is to consider life expectancy changes when it revises its projections for the review.

Former pensions minister, Sir Steve Webb, told the Telegraph having a completely automatic formula to move from changes in life expectancy to changes in SPA could spark chaos for people's financial planning.

He told the publication: "Every time the population projections are updated, this could move the dates for pension age changes by up to a decade, which would make it impossible for people to plan for their retirement finances."