With all the recent turmoil in Government and financial markets, people can be forgiven if they have missed that State Pension Ages (SPAs) are again under review.
The Pensions Act 2014 requires Government to review SPAs every 6 years. The first such review was in 2017 and the Government is now obliged to release its second review no later than 7th May 2023. Any changes in the SPA will require primary legislation.
Before making any decisions, Government is compelled to obtain two reports;
- A report from the Government Actuary (GA) to consider “whether the rules about pensionable age mean that, on average, a person who reaches pensionable age within a specified period can be expected to spend a specified proportion of his or her adult life in retirement, and, if not, ways in which the rules might be changed with a view to achieving that result” (Pensions Act 2014 section 27(4)).
In layman’s terms this means that the GA has to review the latest life expectancy data and determine the points at which people reaching SPA will be in receipt of a state pension for a pre-determined % of their “adult life” (by convention adult life for this purpose is measured from age 20). In 2014 the expectation was that state pension would be paid for up to 33.3% of adult life. Following the 2017 review the proposal was changed to “up to 32%” of adult life.
- An independent report, the terms of reference for which include the following factors:
- Consideration of recent trends in life expectancy in every part of the UK.
- Which metrics would enable state pension costs, and the importance of sharing these fairly between generations, to be taken into account when making SPA decisions.
- Whether it remains right for there to be a fixed proportion of adult life that people should, on average, expect to spend over SPA.
To assist with the gathering of information for the independent review, a consultation was issued (and closed) in the early part of 2022.
Other points regarding this review: Following the 2017 review the Government was inclined to accept the first independent report recommendations that the increase in the SPA to age 68 be brought forward by 7 years to 2037-2039. This review is asked to consider if this is still appropriate before tabling any further changes. The Government also accepted the general principle that a minimum of 10 years notice be given before any SPA changes take effect.
FPS thoughts for the outcome of the review:
It is clear that SPAs are on an upward only trajectory. We expect that the review will be left until the last safe moment to allow the Government to review the very latest life expectancy figures (derived from the 2021 census) and the state of the country’s finances at that time. There is an argument that following COVID, rates of life expectancy improvement (if not the rates themselves) have deteriorated in comparison with the assumptions that fuelled the 2017 proposals. As such, one could say that the advancement of the change to age 68 looks to be excessive. However, we view these changes as being virtually “baked in” as the cost savings that they deliver are just too enticing for Government to ignore.
|State Pension Age Changes||Current Legislation||Proposals after 2017 review|
|67 – 68||2044 – 2046||2037 – 2039|
Unless there is a financial upheaval beyond the level of the shocks already experienced, we expect to see the 2017 changes implemented but little else. If your SPA is still ahead of you we urge you to request state pension forecasts regularly here.
Mike Davis, Deputy Head of Pensions