UK's ageing population prompts calls to push state pension age up to 71

The UK’s ageing population means that the state pension age would need to rise from the current 66 to 70 or 71 to maintain the status quo, research from the International Longevity Centre (ILC) has revealed.

The ILC pointed out that most of those countries ranking at the top of its Healthy Ageing and Prevention Index have rapidly ageing populations, which are making it increasingly important for these governments to act to support healthy ageing.

In particular, the ILC’s analysis showed, at a pension age of 65, a ratio of 20 per cent equates to 5 workers per retiree but a ratio of 50 per cent, which is projected for at least 20 countries on the index by 2050, means just one worker per retiree.

To combat this in the UK, which ranked 16 on the ILC Index, state pension age would need to be 70 or 71 compared with 66 now to maintain the status quo of the constant number of workers per state pensioner.

However, when defining the UK's working adult populations as 20 to 64 years, to account for time spent in full time education, the ILC found that the state pension age might need to hit age 70+ as early as 2040 to maintain the current dependency ratio.

Whilst it acknowledged that the recent stalling in life expectancy during the austerity years and Covid-19 has temporarily eased the pressure for increases in state pension age after 2027, it warned that longer-term the pressure will be on to increase it before that.

This issue is made even more pressing given the fact that many are facing ill health earlier in life, the ILC said, pointing out that the exit of workers from the workforce long before they reach state pension age reduces the tax base to pay for pensions.

Additionally, the ILC warned that a smaller working population and a large economically inactive population create huge labour shortages that create additional problems.

Whilst enabling people to work for longer presents one solution, the ILC acknowledged that this is challenging, with research showing that by age 70, only 50 per cent of adults are disability-free and able to work.

However, if the proportion of the economically active population were to increase from current levels of around 78 per cent to 85 per cent then it may be possible to hold the state pension age at below 70 from 2040 – at least for a few years.

But even with increases in state pension age, the ILC argued that the growing burden of preventable ill-health will continue to act as a key barrier for people to remain in the labour market.

Indeed, ILC research finds that in Europe alone, people who report being in good rather than poor health are over four times more likely to be in work between the ages of 50 and 65, and over 10 times more likely between the ages of 65 and 74.

"Encouraging people to work for longer allows countries to adapt to an ageing society especially if accompanied by a well-funded pension system as a bulwark against poverty," the ILC stated.

"Our research also suggests a greater focus is needed on preventing ill-health not just in old age but from early age through adulthood.

"Policymakers can no longer ignore the impact of poor health on wider society and doing so will simply make wider policies related to work or pensions ineffective."

In addition to this, the ILC reiterated calls for action in the pensions space, arguing that the government should move forward quickly on increasing auto-enrolment minimums while developing systems to auto-enrol self-employed people.

It also called for an innovation fund to help develop workable mechanisms that would support those working in the gig economy to save.

However, the ILC admitted that it is unlikely that the current policy consensus will drive the changes needed to ensure that future generations of older people have the same opportunities as their predecessors.

Given this, it emphasised the need to "seriously explore the case for bolder government and employer interventions that would drive and support behaviour change among individuals".

PensionBee director of public affairs, Becky O’Connor, highlighted the dramatic increase to the state pension age from the current age of 66 to possibly as high as 71 as "quite an alarming prospect".

She continued: “People depend on the state pension for a significant chunk of their retirement income. It’s also key to confidence in people’s ability to retire at all.

“Even the suggestion that people won’t get it until their 70s will make people feel more distrustful than they already do in the state pension system and may cause actual worry and anxiety about their future.

“If people suffer ill health or face the need to care before 71, as is likely for many, they may have to give up work sooner than they can receive their state pension anyway and have to claim working age benefits for longer instead.

“While the sustainability of the state pension needs to be properly examined, increasing the age people get it may not turn out to be the cost saving a government would hope for.”

Aegon head of pensions, Kate Smith, shared these concerns, warning that pushing back the state pension age to age 71 would be a shock for many – when they are expecting to receive this from age 67 or 68.

Given this, Smith urged the UK’s political parties to detail their plans over the future of the state pension, particularly given it is an election year.

"This is too important an issue to be kicked into the long grass. People need to know where they stand and what this means for their later life, giving them plenty of time to adjust their working and savings plans," she stated.

“Raising the state pension age feels a like very blunt instrument - and would likely penalise those most in need.

“This report from the International Longevity Centre shows that we all collectively and individually would benefit from looking more closely at the uncharted territory of later life."

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