Guidance

State Pension age Review 2023: a GAD technical bulletin

Published 4 April 2023

Introduction

The Secretary of State for Work and Pensions has published his report on the government’s periodic review of the State Pension age (SPa). This bulletin summarises the report’s main conclusions and provides detail on the two reports that informed the review, by the Government Actuary and by Baroness Neville-Rolfe.

Government proposals

• The increase in SPa from 66 to 67 will take place between 2026 and 2028, as legislated in the Pensions Act 2014.
• This review makes no changes to the planned increase in SPa from 67 to 68, which is currently legislated to take place between 2044 and 2046.
• A further review of the SPa will take place within two years of the next Parliament to reconsider the rise to age 68.
• The government remains committed to the principle of giving 10 year’s notice of changes to SPa.

Background

SPa is the earliest age at which people can receive their State Pension. Since October 2020, it has been set at 66 for both men and women who were born on or after 6 October 1954. Current legislation provides for further increases to SPa in the following timescales:

• increase in SPa from 66 to 67 - between April 2026 and April 2028 (affecting those born on or after 6 April 1960)
• increase in SPa from 67 to 68 - between April 2044 and April 2046 (affecting those born on or after 6 April 1977)

The Pensions Act 2014 requires the government to carry out periodic reviews as to whether the rules about pensionable age are appropriate and to publish a report on the findings. These reports must have regard to life expectancy and other factors that the Secretary of State considers relevant. Two additional reports must be prepared for each review:

1. A report by the Government Actuary on whether the rules about pensionable age mean that, on average, a person who reaches SPa within a specified period can be expected to spend a specified proportion of adult life in retirement.
2. A report on other factors, specified by the Secretary of State as relevant to the review.

The first government review of SPa under this legislation was published in 2017 (the ‘2017 review’). In its report on the 2017 review, the then government stated that “in the long run, the government is minded to commit to ‘up to 32%’ as the right proportion of adult life to spend in receipt of State Pension”. It also announced an intention to increase SPa from 67 to 68 between 2037 and 2039, bringing it forward by seven years from its legislated date of 2044 to 2046. That change, however, would not be legislated for until after the latest life expectancy projections had been analysed in the 2023 review.

Government Actuary’s report

The Government Actuary’s report for the latest SPa review was issued to the Secretary of State for Work and Pensions in October 2022 and has now been published. The report analyses whether the rules about SPa mean that, on average, a person who reaches SPa within a specified period can be expected to spend a specified proportion of their adult life in retirement.

For this review, the Government Actuary was formally commissioned by DWP to:

• comment on trends in life expectancy data
• assess the current legislative timetable for the rise to 67 and 68 and the 2017 proposal to bring forward to the rise to 68, subject to consideration of the latest life expectancy projections
• conduct sensitivity analysis

Approach

The Secretary of State for Work and Pensions specified some of the method and assumptions to be used for the calculations in the Government Actuary’s report, including:

• the proportion of adult life spent in retirement - calculations for three different scenarios: 32%, 31% and 30%
• the start of adult life - age 20
• the average life expectancy at SPa - to be calculated using the Office for National Statistics’ (ONS) 2020-based cohort life expectancy projections

Key results

The table below shows when SPa is due to change and the SPa timetable calculated by the Government Actuary under each of the required scenarios. SPa changes are considered up to 2070 and are assumed to take place over two-year periods commencing on 6 April.

			Proportion of adult life in retirement	Proportion of adult life in retirement	Proportion of adult life in retirement
SPa increase	Current legislation	2017 review	32%	31%	30%
66 to 67	2026-28	2026-28	2037-39	2026-28	2023-25
67 to 68	2044-46	2037-39	2053-55	2041-43	2030-32
68 to 69	-	-	After 2070	2058-60	2046-48
69 to 70	-	-	After 2070	After 2070	2062-64

Sensitivity

The calculated SPa timetables are highly sensitive to both the proportion of adult life in retirement selected (as illustrated in the table above) and to the life expectancy assumptions adopted.

Changes in the population projections produced by the ONS can lead to considerable shifts to the calculated SPa timetable, particularly for the 32% proportion. For example, moving from the ONS 2014-based projections (used in the 2017 review) to the 2020-based projections means that the increase from 67 to 68 takes place 27 years later.

Improvements in life expectancy in recent years have been slower than had been previously expected. Life expectancy has still generally been increasing, but the 2014-based projections anticipated improvements would be at a faster rate than the 2020-based projections now show. This means that projected average future life expectancy at retirement has reduced by over 2 years since the 2017 review.

This sensitivity illustrates the difficulty of setting future SPa timetables if based solely on calculations which can fluctuate over a relatively short period. The analysis is useful in providing an important context to the policy decisions concerning future SPa timetables, but a purely formulaic approach would be compromised by these limitations in the underlying statistics.

Wider factors

The Government Actuary’s report notes that there are many other considerations to allow for in making decisions on SPa timetables in addition to life expectancy projections. Examples include sustainability, long-term affordability and fairness. Such considerations were outside of the scope of his report but are considered as part of the wider government review.

Allowing for changes to life expectancy projections over time is highlighted in the legislation as a key component of SPa reviews. The Government Actuary’s report helps to illustrate the recent changing trends and how they can affect the setting of SPa in the future.

Independent Report

This SPa review’s independent report was carried out by Baroness Neville-Rolfe and is dated September 2022. The report provides evidence on areas as set out in the terms of reference for the independent report:

• Life expectancy - including recent trends, healthy life expectancy and how life expectancy varies (such as by region, socioeconomic status, deprivation and ethnicity)
• Work and health - focusing on why older people may find it difficult to remain in work
• Intergenerational fairness - noting that the ratio of the working age population compared to pensioners is projected to shrink over time
• Affordability and sustainability - including that in the tax year 2021 to 2022 State Pension-related expenditure was 4.8% of Gross Domestic Product (GDP)
• Metrics - appropriateness of alternative metrics for determining SPa and their relative merits
• Awareness and communicating change - improving awareness of individual SPa, as well as the importance of communicating any planned changes to SPa.

Baroness Neville-Rolfe’s report includes several recommendations with the key findings being that:

• The existing metric for setting SPa in relation to the proportion of adult life that people should, on average, expect to spend over SPa remains appropriate. That proportion should be set at up to 31% of adult life.
• An additional metric should be introduced to address concerns around affordability and sustainability. It is suggested that the government sets a limit on State Pension-related expenditure of up to 6% of GDP. Breaches could be addressed by changes to SPa, eligibility rules or uprating.
• At the time of review, and based on the metrics mentioned, the legislated rise of SPa to 67 should continue as planned. The rise to 68 should be over the period 2041 to 2043. This is 4 years later than recommended by the previous independent review, but 3 years earlier than the current legislated timetable.
• Wider recommendations include suggestions for supporting older workers, exploring the possibility of early access to State Pension (at an actuarially reduced rate) and improving awareness and communication.

Government report

The Secretary of State published his report on 30 March 2023 and the government’s proposals for the future of the SPa timetable are set out above.

The government welcomed the findings from the Government Actuary and Baroness Neville-Rolfe. It noted that Baroness Neville-Rolfe has highlighted key challenges in respect of life expectancy and fiscal sustainability and has sought to balance these considerations alongside intergenerational fairness.

The Secretary of State agreed with the Independent Report conclusion that the rise from 66 to 67 is appropriate and will therefore take place between 2026 and 2028.

The Secretary of State noted that the Independent Report “was not able to take into account the long-term impact of recent significant external challenges, including the COVID-19 pandemic and recent global inflationary pressures. This brings a level of uncertainty in relation to the data on life expectancy, labour markets and the public finances.”

Due to the level of uncertainty, the government concluded that the current rules for the rise to 68 remain appropriate, and that it did not intend to change the existing legislation prior to the conclusion of the next review. The government confirmed that all options for the rise from 67 to 68 that meet the principle of 10 years notice would be in scope at the next review.

Next steps

The Government plans to have a further review of the SPa within 2 years of the next Parliament, to reconsider age 68. This will ensure that the government is able to consider the latest information which was not available to the independent reviewer. This includes factors such as 2021 Census data, the economic position and the impact on the labour market of recent government measures to tackle inactivity.

If you’d like to discuss the topics covered in this bulletin, get in touch with your usual GAD contact.