The state pension age may increase more quickly than longevity over time due to the way the government calculates state pension age increases, according to the Pensions Policy Institute.

In the report, The distributional impact of state pension age rises, the PPI explores the potential effects of current and future rises in state pension age on people of different regions, ethnicity, gender and socio-economic class and on government costs/savings.

Explaining the reason for the report, PPI head of policy research Daniela Silcock said: “Longevity increases and demographic changes have caused the cost of the state pension to rise, bringing its long-term sustainability into question. As a result, the government has introduced several state pension reforms, key among them being rises to the state pension age.”

Silcock noted that state pension age rises are calculated to allow people to receive state pension for a third of adult life on average, and are based on life expectancy projections.

“These projections are surrounded by uncertainty as they are based on current mortality rates which change over time. For example, 2010-based projections predicted life expectancy increasing more quickly than 2012 and 2014-based projections. Using 2010 based projections within the government formula would imply state pension age increasing to 68 by 2035, 7 years earlier than if the 2014 based projections are used,” she explained.

“The government’s formula also calculates state pension age increases using an average which is affected by people with very high life expectancies. This means that in the year that state pension age rises, less than 50 per cent of people reaching state pension age that year might expect to spend a third of adult life receiving the state pension.”

Silcock said that if a median were used to calculate increases, so that 50 per cent of people received state pension for a third of adult life and 50 per cent received it for less, then state pension age would need to rise more slowly.

“State pension age rises do not affect everyone equally. Lower average life and healthy-life expectancies mean some people living in certain areas, ethnic minorities and people from lower socio-economic classes will receive their state pension for a shorter time on average and some are less likely to be able to work up until state pension age than the average person.

“There are policy options for mitigating the effects on those most severely impacted, such as tackling inequalities which lead to lower average life expectancies and healthy life expectancies. Other options involve allowing people early access to state pensions or pensioner benefits. These policies could reduce the level of saving from state pension age rises, thereby increasing the cost burden on the state, but would ensure that there is some protection in the system for people with lower than average life and healthy life expectancies,” she added.

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