Out-Law News 3 min. read

Changing demographics 'challenge of our age', says expert, as state pension age report published

The state pension age (SPA) may have to rise to 68 earlier than planned if it is to remain affordable, according to an independent review commissioned by the government.

The 'triple lock', which guarantees future increases to the state pension rate, should also be withdrawn by the next parliament and replaced by a new system of uprating which is linked to earnings, businessman Sir John Cridland said in his report.

Cridland had been asked by the government for recommendations on how best to reform the SPA in order to ensure that it remains "affordable and fair for all" beyond 2028. The government has already committed to raising the SPA from 65 to 66 by October 2020 and to 67 by 2028, but future increases are not currently anticipated before 2046.

According to Cridland, the SPA should increase to 68 between 2037 and 2039, although "means-tested" support could be provided one year before retirement age to those unable to work due to ill health or caring responsibilities. However, future increases should be limited to more than one year in any 10 year period, "assuming that there are no exceptional changes to the data used", according to his report.

The government will consider Cridland's recommendations alongside the findings of a separate report by the Government Actuary Department (GAD), before publishing its own proposals in May. GAD plotted potential changes to the SPA against life expectancy projections, and concluded that the SPA would have to rise to 69 between 2053 and 2055 to meet the government's intention that an individual should receive the state pension for the last third of their adult life.

Pensions expert Stephen Scholefield of Pinsent Masons, the law firm behind Out-Law.com, said that how the UK would deal with its ageing society "really is the challenge of our age".

"At its heart, it's quite simple," he said. "We're living longer and the state pension needs to reflect that to be sustainable. This means it needs to start later and to increase less quickly. And we need to help people plan for this by getting people to save more - especially those who tend to be less well-pensioned, such as the self-employed and those who have had time out of the workplace to care for others."

"We also need to find ways of keeping people employed for longer, which is a challenge in a world of increasing automation," he said.

Under the Pensions Act, the government is required to carry out a review of the SPA every five years to ensure the system remains financially sustainable. It has, however, ruled out further changes to the SPA before 2028, and has committed to providing 10 years' notice of future changes to ensure fairness for those nearing retirement age.

In his report, Cridland backed the continuation of a "universal" SPA, despite addressing the case for an alternative to this model in his interim report last year. However, he suggested that some of the money saved by the government by increasing the SPA should be "re-invested" in the system in order to "support disadvantaged groups".

In his report, he recommended that "means-tested" access to some pension income should be provided to "a defined group of people who are unable to work through ill health or because of caring responsibilities", one year before they reach SPA. This should be introduced by the time the SPA increases to 68. Modifications should also be made to Universal Credit for those approaching SPA at the same time, in order to "enable a smoother transition into retirement".

Cridland also recommended "modest" changes to the benefit system, which would give those reliant on the state pension some of the same flexibilities now available to those with private pensions. This could include the introduction of a lump sum for those who defer their pension, and 'part drawdown' provision for those who remain in work past the SPA.

The government should also do more to support those approaching SPA who have caring responsibilities, according to Cridland. He recommended that employers implement 'eldercare policies' including a basic care offer; while the government should consider 'statutory carers' leave', based on the existing sick pay model, to enable informal carers to provide emergency care.

Those in work should also be able to access a service in middle age that would encourage them to "take stock, and make realistic choices about work, health and retirement", according to the report. Cridland's proposed 'mid-life MOT' would be provided by employers and the government through a combination of online support and access to the National Careers Service, he said.

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