Government follows Cridland on state pension age

The move will see 32 per cent become the target amount of life for people to spend in retirement, which work and pensions secretary David Gauke said would keep the state pension sustainable.

The proposal will not appear in legislation during this government’s tenure, with many speculating that the level of opposition from other parties will mean the Conservatives need to regain their majority before passing the law.

Published earlier this year, John Cridland’s report into the state pension age recommended that the increase to 68 take place between 2037 and 2039. The current legislation plans for this rise between 2044 and 2046.

If they don’t say that, then essentially the next generation will just have to pay for it via higher tax

Steve Webb, Royal London

It projected that public spending on pensions would rise from 5.2 per cent of GDP in 2016-17 to 6.2 per cent in 2036-37. The proposals would reduce this burden by 0.4 per cent in 2039-40.

Introducing the policy, Gauke said he wanted Britain to be “the best country in the world in which to grow old”, despite the UK lagging behind the 2015 OECD average spend on pensions, which stood at 7.9 per cent of GDP.

“As life expectancy continues to rise and the number of people in receipt of state pension increases, we need to ensure that we have a fair and sustainable system that is reflective of modern life and protected for future generations,” he said in a statement.

Political opposition

The announcement was met with astonishment from shadow work and pensions secretary Debbie Abrahams, who emphasised the toll a longer working life could take on disadvantaged people.

“The latest research shows that working people in some places will now fall ill 10 years before receiving their state pension under the Tories' new plan – and just days ago, evidence emerged showing that increases in life expectancy are stalling,” she said.

Labour plans to leave the state pension age at 66, while considering systems which could take account the contributions made by individuals towards the benefit, and even how “arduous” their working life is.

Returning to a non-universal state pension also has the support of Unite, the UK’s largest union.

However, industry commentators called the government’s decision sensible, given the steadily widening gap between life expectancy and state pension age.

“If Labour wants to oppose it then it needs to come up with a credible alternative,” said AJ Bell senior analyst Tom Selby, who added that its suggestions were edging towards the “complex nightmare” which was the means-tested state pension.

Slowing longevity increases

The proposals will now be subject to a review, which will consider the latest available longevity data, with legislation laid by 2023.

“It’s interesting to see that they’ve actually kicked down the road the responsibility for the final legislation to the next government," said Tom McPhail, head of retirement policy at Hargreaves Lansdown. He suspected that this was due to the current government’s lack of formal majority.

The latest longevity data reveals a striking slowdown in life expectancy increases since 2010, with one year added for every 10 over that period.

However, McPhail said the accelerated increases were “still playing catch-up” with a previous period of rapidly increasing longevity and unchanged state pension age, arguing that a materially different trend would be needed to recall the policy.

For all the political wrangling, any party will have to decide which generation pays for our ageing society, according to Steve Webb, director of policy at Royal London.

The Conservative proposal would increase the state pension age for a generation currently in their forties, but “if they don’t say that, then essentially the next generation will just have to pay for it via higher tax,” he said.