A review into the state pension age (SPA) by the Department for Work and Pensions (DWP) has sparked concerns about the potential for increasing inequality and poverty among pensioners. Under a proposed plan, the government may link the SPA to life expectancy, a strategy already implemented in several European countries.
Currently, the state pension age is set to rise from 66 to 67 next year, with further increases planned in the future. However, the Labour Party government’s new review, led by Dr. Suzy Morrissey, will investigate the impact of linking the SPA to life expectancy.
This change would see the pension age fluctuate based on changes in life expectancy data. But experts argue that this shift could disproportionately affect individuals who have already experienced challenges in the labour market.
Linking Pension Age to Life Expectancy: A Risky Strategy?
According to Dr. Suzy Morrissey, the DWP’s review will explore the merits of Automatic Adjustment Mechanisms (AAMs) that tie the SPA to life expectancy, as seen in countries such as Denmark, Finland, and Italy. While these systems have been praised for ensuring that pension systems remain financially sustainable in the long term, critics argue that they risk deepening inequality.
Catherine Foot, Director of the Standard Life Centre for the Future of Retirement, warns that using life expectancy to determine the SPA could worsen poverty among pre-retirement populations. Foot explains that this would particularly affect individuals who have struggled to stay employed or those who have taken early retirement due to illness or other factors. She emphasises the importance of combining any increase in the SPA with active labour market policies to ensure people can remain in work and avoid financial hardship before reaching retirement age.
The Impact on Pension Planning
One of the key concerns with linking the SPA to life expectancy is the uncertainty it could create for future retirees. Former pensions minister Sir Steve Webb argues that basing pension age on updated population projections would introduce unpredictability, making it difficult for individuals to plan their retirement finances effectively. The frequent shifting of pension dates could leave people without clear guidance, undermining long-term financial security.
In Denmark, the pension age has been tied to life expectancy since 2006, with the age now set to rise to 70 by 2040. Critics in the UK fear that adopting a similar system could have unintended consequences, pushing vulnerable groups further into poverty as they face extended working years.
