The current state pension system will become ‘unsustainable’ unless people work for longer and the state pension age is raised possibly even higher than 66, new research has found. The study recommended the Government also consider introducing a variable state pension age to acknowledge the wide variations in life expectancy across the UK.

The paper Living longer and prospering?, published jointly by the Oxford Institute of Ageing, University of Oxford and longevity specialists Club Vita, showed that life expectancy increases are likely to continue to outpace the planned rises in the state pension age, which will result in unsustainable, escalating costs.

The authors of the report explore a series of potential reform options, including linking the state pension age to the Office for National Statistics’ ‘healthy’ life expectancy (HLE) measure, which indicates the length of time an individual remains healthy and is therefore more closely aligned to their ability to work into later life. This would result in a more relevant and fairer measure than increases in total life expectancy.

Another option suggested by the authors is the introduction of a variable state pension age dependent on an individual’s life expectancy or lifetime earnings, as there is a strong correlation between low wealth and shorter life expectancy in the UK. The impact of universal increases in the state pension age is therefore felt hardest by those who rely on the benefit the most.

A third solution would be to link the state pension age to the working/retired ratio in the population. The system requires the working population to support those in retirement, but at the moment this ratio is deteriorating and could become unsustainable. The authors propose that this ratio might, for example, ensure that 70% of an adult’s life is spent in employment and 30% in retirement.

Professor Sarah Harper, director at the Oxford Institute of Ageing and co-author of the report, said: “What has made pension sustainability so crucial is that the steady increase in life expectancy is occurring in the context of population ageing. There are going to be fewer younger workers supporting a much bigger elderly population.

“Furthermore the regional differences are significant. Our data revealed a 13 year gap in life expectancy at 65 for men and a 16 year gap for women between those living in the top most affluent areas and those in the bottom least well off areas.

“Interestingly, whether you are a manual worker or not only adds about a year to predicted life expectancy (male non-manual can expect one year longer) while a healthy life style can add 4 or 5 years to both men and women’s lives after 65.”

Steven Baxter, longevity consultant at Club Vita and co-author of the report, added: “The Government’s current reform proposals are welcome, but without additional measures we risk the system becoming unviable. Changes in life expectancy are rapidly eroding the capability of the system to be sustainable and act as the safety net that it was designed for.

“The combination of a decline in middle and old age mortality and falling fertility rates inevitably means fewer workers supporting higher numbers of pensioners. That is simply unsustainable, and without further action, terminal for our state pension.

“We should also acknowledge that a one size fits all system is no longer suitable. The degree of variation in life expectancy across the UK means we cannot hope to have a fair system based on the present one size fits all retirement age. Variable state pension ages are a potential solution to this problem.”

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