The collective problem of delivering higher state pensions, public debt and longevity could all be solved with the implementation of a faster and further rise in the State Pension Age (SPA), argues PricewaterhouseCoopers LLP (PwC) in its report, Working longer, living better: A Fiscal and Social imperative.

The government has ruled to raise the SPA to 68 by 2046. But PwC has questioned whether the provisions will go far enough to plug the gap in UK public debt, due to the financial crisis.

One option, the report says, is to up the SPA to reduce state pension spending and boost tax revenues, as some people would choose to work longer as a result. The government, PwC said, must implement a phased increase in the SPA to 70 by 2046. This, the firm estimates, will have an estimated net fiscal benefit relative to current plans of around 0.6 per cent of GDP in 2046, or £9bn at 2010/11 GDP values.

This PWC claims, would cover around 60 per cent of the projected rise in state pension spending between 2010 and 2046, a plug driven by the re-indexing policy of the basic state pension to earnings rather than prices before the end of the next parliament. This would in turn reduce the burden of public debt and taxation on younger generations of workers.

Calculations in the report estimate that the net fiscal benefit of raising SPA to 70, rather than 68, by 2046 would be equivalent to avoiding a tax rise at that time of just under two pence on the basic rate of income tax, or two percentage points on the standard rate of VAT.

John Hawksworth, head of macroeconomics at PwC and co-author of the report, said: "Either taxes will have to rise or other policies need to adjust to deal with the higher costs of state pensions, health and long-term care, as well as the large debt hangover from the global financial crisis."

Partner and head of PwC's government and public sector practice, Jon Sibson, added that while the government has responsibility for changing the SPA legislation, a change in the attitudes and behaviours of individuals and employers is also necessary. "The Default Retirement Age should be abolished and public services and police reshaped to promote extended working life. There will also need to be policies focused on employment support and the right non-pension benefits."

The report is available by email.

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