What's going to happen to the state pension age?

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The age at which people can draw a state pension has been a hot political topic in recent years. Until 2010 the state pension age was 65 for men and 60 for women, and had not changed for the best part of a century.

But in the years since then there have been a series of increases to pension ages, especially for women, and more are in the pipeline.

The latest changes mean that state pension ages for men and women will be equalised at 65 in October 2018, will reach 66 in October 2020, and will rise to 67 in the late 2020s.

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STATE PENSION AGE REVIEW

In response to all of this controversy, the last government decided that it was necessary to be more systematic about pension age rises, rather than simply announcing new timetables on an ad hoc basis with limited notice.

The 2014 Pensions Act now requires the government to hold a review of pension ages every five years, taking account of the latest information on how long we are all living.

The aim is to end up with a system where people can expect to spend around two thirds of their adult life in work and one third in retirement. So, for example, if it was thought that today's 20-year-olds might live to 95, they would be expected to work for 50 years (to age 70) and be retired for 25.

The first such review is now underway, and will be informed by an independent report prepared by Sir John Cridland, former head of the CBI.

He has been asked to consider three questions - what changes would make the system fairer, what is needed to make the system affordable, and how can any changes best promote fuller (i.e. longer) working lives.

Cridland has recently produced an interim report that raises a number of issues and questions, and he will produce a final report in spring 2017. After this, the government will have to decide what changes to make.

Whilst pension ages will continue to be reviewed every five years, the government has said that no-one will have their pension age changed within 10 years of retirement.

The Cridland report highlights a number of groups who might be adversely affected by further rises in the state pension age, mainly because they tend to have lower levels of private pension income on which to rely before state pension kicks in.

These include older carers, who may have reduced earnings potential because of family responsibilities, and self-employed people, who may have limited private pension provision.

The report also talks about those who suffer 'burnout' - namely people who are physically unable to continue in work, sometimes well before traditional state pension age.

POSSIBLE SOLUTIONS

The report also highlights the big differences in life expectancies not just between different parts of the country, but also within local areas.

For example, the report shows that the gap in life expectancy between the best and worst areas of Glasgow is bigger than the gap in life expectancy between Glasgow and London.

This is one of many reasons why having different pension ages for different areas would not be a practical suggestion.

Another idea is that people might be able to draw a pension earlier if they have notched up an extensive record of national insurance contributions.

One suggestion is that those who have put 45 years in the system would be able to draw a pension at once, regardless of their state pension age. This would mean that someone who left school at 18 might get a pension at 63, whilst a graduate who started work at 21 would have to wait to 66.

This is an interesting idea and might be expected to favour those (such as non-graduates) who have lower average life expectancies.

But it is generally men in good health who are most likely to get to 45 qualifying years, and it is hard to think that this group should be a priority for reforming the pension system.

In short, whilst it is relatively easy to point to the unfairnesses that arise from having a single pension age for all groups, it is far from easy to come up with solutions that don't create new ones or make the system unworkably complex.

Given that we are now moving to a much simpler, flat rate state pension, it would be regrettable if new complexity was to be introduced over state pension ages.

Steve Webb is director of policy at Royal London.


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