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The government has, according to newspaper reports, decided against accelerating plans to raise the state pension age.
The age at which the state pension is payable, currently 66, will have risen to 67 by the end of 2028.
It was then due to begin gradually rising from 67 to 68 between 2044 and 2046.
But ministers were keen to accelerate these changes to 2037-39 – something actually recommended by John Cridland, a former director-general of the CBI, in a government-backed review six years ago.
This was despite Mel Stride, the secretary of state for work and pensions, recently acknowledging to MPs that to do so would be “pretty hairy”.
He is expected to address MPs on Thursday, when he is likely to update them on the latest statutory review on the pension age.
Now, it seems, pragmatism has won the day and the plan has been shelved for now.
The proposed acceleration of the rise in the state pension age was driven largely by the need to save money.
The independent Institute for Fiscal Studies has calculated that raising the state pension age to 68 in 2037 rather than 2045 would save the government up to £80bn during that eight year period.
What has changed, though, is something that no politician, even a chancellor desperate to save money, could afford to ignore.
Life expectancy
The justification for the increase, as set out by Mr Cridland, was rising life expectancy.
This is something that was explicitly made by the coalition government when, in 2013, it stated that people should expect to spend on average up to one third of their adult life in retirement.
If life expectancy was rising, Mr Cridland reasoned, it made sense for the state pension age to rise with it.
However, since the pandemic, life expectancy in the UK has actually gone backwards.
Data from the Office for Health Improvement and Disparities suggests life expectancy was lower in 2021 than it was a decade earlier.
For women, the pandemic clipped a year off life expectancy on average and for men, 1.3 years.
The growth in NHS waiting lists since the pandemic, along with the likely increase in premature deaths which will result, means UK life expectancy is unlikely to recover any time soon.
This, then, removes one of the major justifications for bringing forward the rise in the state pension age.
France
Ministers may also have had in mind the violent protests and wave of strikes sparked in France by President Emmanuel Macron’s comparatively modest proposal to raise the state pension age from 62 to 64 – which would still leave the country with one of the earliest state pension ages in the rich world.
That, though, seems unlikely. The British are not prone to the kind of street protests seen in France.
Demonstrators clash with police in Lyon and Paris over the government’s controversial pension plans.
They are, however, just as likely to mete out punishment to politicians at the ballot box – and this is likely to have played a key role in ministerial thinking.
Conservative MPs, it seems, have been anxious at a possible backlash from middle-aged voters.
At the heart of this, as Mr Cridland noted in his review, is so-called ‘Generation X’ – the cohort of workers born between 1966 and 1979 and now aged between 44 and 57.
This is a generation much smaller in number than the ‘Baby Boomer’ generation that preceded it and the ‘Generation Y’ or ‘Millennial’ generation that followed it.
It has, as a result, often been overlooked by policymakers.
A key group of voters
It is, though, a key group of swing voters.
Predominantly homeowners (home ownership is the greatest predictor of someone voting Conservative), it is a cohort now beginning to think about retirement planning, so tampering with those retirement plans relatively late in the day would be fraught with risk for politicians.
It is also the generation already most exposed to changes in the state pension age. Those born between 1970 and 1978 were told as long ago as 2017 that they would have to wait another year, until turning 68, before being able to claim the state pension.
As Mr Cridland put it in his review: “Generation X are most likely to need to take account of any changes to state pension age in their retirement planning.”
His comments reflect the fact that Gen X-ers have been right at the centre of the upheaval of UK pensions provision during the last three decades.
Read more
‘Millennial’ and ‘Generation X’ votes at risk if UK government follows France in raising state pension age
How does France’s pension age compare to other countries – and why has it sparked protests?
Changing rules
The Boomers largely benefit from ‘defined benefit’ pensions, sometimes referred to as ‘final salary’ pensions, whereby the risk of them living to a ripe old age was borne by their employers.
These, to all intents and purposes, no longer exist in the private sector. The tax raid on private pensions by the then Chancellor Gordon Brown in 1997 – when Gen X-ers were aged between 18 and 31 – hastened the closure of such schemes by employers.
In their place have come so-called ‘defined contribution’ or ‘money purchase’ pensions where the employee, not the employer, bears the risk of them outliving their retirement savings.
Their ability to amass a sizeable pension has also been hit in other ways.
These include the introduction by Mr Brown of the lifetime allowance, which dictates how much someone may grow their pension savings before it attracts a punitive rate of tax, along with George Osborne’s subsequent cuts to that allowance.
Pension lifetime allowance abolished
Gen X losing out
With equities the main component of any pension pot, Generation X has also seen its ability to save hit on a regular basis by stock market volatility, including the Asian financial crisis between 1997 and 1998, the bursting of the dot-com bubble in 2000, the global financial crisis of 2008-09 and, more recently, the pandemic.
As a result, Generation X are likely to be far more dependent on the state pension for their income in old age, a fact probably now dawning on millions of them as they embark on retirement planning. Politicians will tamper with that at their peril.
Those pressures will be just as pronounced for the Millennials following in their wake although at least part of this latter cohort of workers will benefit, as Mr Cridland noted, from the new simplified state pension introduced in 2016 and from the increased coverage of workplace pensions that followed the introduction of automatic enrolment.
A battle not yet won
Members of Generation X and the Millennial generation should not regard this ministerial climbdown as a battle that has been won.
The growing pressure on the public finances, created in no small part by the ageing population, means there will be further calls in years to come for the state pension age to carry on rising and at a potentially faster pace.
As the former Conservative MP David Gauke, who was work and pensions secretary when the state pension age was last raised earlier than planned, told the Financial Times: “For the long-term sustainability of the public finances an acceleration of the increase in the state pension age is almost certainly necessary.”
So Millennials and Gen X-ers have been put on notice.
The time to start putting more money into your pension – something made possible by the chancellor, Jeremy Hunt, raising the annual allowance for pension savers last week – is now.
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