The three charts that convinced Jeremy Hunt not to raise the state pension age
The Government can save billions of pounds by increasing the state pension age by a year – from a public finance perspective, it is a seemingly easy win.
Raising the retirement age simultaneously pushes down the cost of paying the state pension, and generates more revenue in income tax from people who have no choice but to work on for longer. But whether this is fair to taxpayers is a separate question.
Millions have toiled for decades under the assumption that they would receive a state pension around their mid 60s. This social contract is politically delicate – and history suggests that tinkering with it deepens social inequality across the country.
Yet the Treasury has been considering plans that would accelerate increases in the state pension age. It is already set to rise to 67 by 2028.
The Government had hinted that it wanted to bring this rise forward, to 2039, and as recently as Tuesday there were fears that Chancellor Jeremy Hunt could announce an even earlier timetable, between 2034 and 2036. The Government is compelled to respond to a review of the pension age in May.
So why has the Chancellor apparently changed his mind on the increase? These are the charts, and evidence, that might have swayed him.
Living longer – but not healthier
Proponents of a higher state pension age argue that it should move in line with an ageing population. In theory, this would keep the proportion of workers and retirees constant, so that the state pension system is never underfunded.
But the most recent official data shows that life expectancy dropped over the course of 2018‑20, for the first time since records began in the 1980s. But after stripping out the impact of the pandemic on the numbers, it remains clear that the long-term trend points to an ageing population in Britain.
However, Steven Cameron of the pensions company Aegon noted that while people might be living longer, they might not be living healthier lives. Government expenditure on healthcare has been steadily climbing for almost a decade and the bulk of it has gone towards curative and rehabilitative care, according to the Office for National Statistics.
Mr Cameron said: “The problem with increasing the state pension age is that many people simply cannot keep working to that age as a matter of health. That might be because a job is physically demanding or it could be mentally draining and highly stressful.
“It is difficult to keep working into old age and maintain your wellbeing at the same time. It could result in more elderly workers claiming health benefits.
“The cost savings for the Government might not be as big as they think.”
Alistair McQueen of Aviva, a pension provider, added that there would need to be stronger support systems in place for older workers returning to the workforce.
“If people are to be asked to wait longer for their state pension, they must be supported in working longer too,” he said. “Some may leave the employment market through choice, but others are forced to leave because of a lack of employment opportunities.”
Poorer people hardest hit
History suggests that increasing the state pension age deepens social inequality across the country. The last increase in the state pension age disproportionately affected elderly workers in the poorest areas of Britain, according to the Institute for Fiscal Studies, a think tank.
This is because they are less likely to have sufficient private savings and therefore have no choice but to work for longer while they wait to receive the state pension.
When the state pension age increased from 65 to 66, one in seven 65-year-olds were pushed into income poverty as a result, the IFS estimated.
In the most deprived 20pc of areas in England, there was an 11 percentage point increase in the number of over-65s returning to work. That was more than double the wealthiest 20pc of areas, which recorded a rise of just four percentage points.
Mr Cameron added: “Life expectancy also varies drastically depending on which part of the country you are in. This means that those in poorer areas with the lowest life expectancy will receive less in state pension payments over their lifetime.”
People who live in Kensington and Chelsea have the highest life expectancy in the country, at an average of 89.1 years, followed by Westminster at 88.7 and Camden at 88.6, according to official data. The lowest is in Glasgow, at 81.7.
Mr Cameron also noted that retirees in poorer areas might have to return to manual labour, which could add further strain on their health.
Pensioners will not outnumber workers
Another fear is that unless the state pension increases, an ageing population will eventually lead to pensioners outnumbering the working population.
This would make the state pension increasingly difficult to maintain, as it is funded by people currently in the workforce through their National Insurance contributions, rather than the money paid into the system by retirees.
However, official projections suggest that, while the gap will narrow over the next 100 years, the working population will still be bigger than the number of people aged over 65 – at a ratio of around two to one.