Raise workers' retiring age sooner, say pension experts

Published on Friday 11 September 2009 19:52

THE rise in the state pension age should be brought forward to offset the effect of longer life expectancy, a leading pensions think tank has claimed.

The state pension age is scheduled to rise to 67 from 2034, but the Pensions Policy Institute (PPI) has urged the government to bring forward the increase to 2026, forcing more people to work for longer.

It claimed that with longevity likely to increase by more than currently predicted, and the government set to link the rise in the state pension to earnings rather than prices from 2012, the cost of funding state pensions will escalate dramatically.

The state pension age for men and women will rise to 66 in 2024, 67 in 2034 then 68 in 2044, under government plans. The state pension age for women will rise next year, reaching 65 by 2020. There are almost a million pensioners in Scotland, with women in the majority.

City watchdog chairman Lord Adair Turner, author of the 2005 report proposing the state pension age rise, recently claimed he should have been bolder and raised the pension age to 70, due to faster than expected rises in life expectancy.

Now the PPI has argued that unless the state pension age is hiked earlier, spending on state pensions could rocket by 40 per cent by 2032, due primarily to a jump in life expectancy.

The official life expectancy projections from the Office for National Statistics assume a 66 per cent increase in the number of people of state pension age between 2006 and 2032.

But the PPI believes life expectancy is rising faster than the official projections. It estimates that the number of people of state pension age will soar by 77 per cent between 2006 and 2032, while the number of people over 85 could increase threefold.

"It is well known that people in the UK are living longer than they have in the past," the PPI said. "What is not well known is how long people are likely to live in the future."

As a result, the government's spending on state pensions is set to soar. Under current projections, 4.4 per cent of GDP is to be spent on state pensions in 2012, rising to 6.2 per cent in 2032. Bringing forward the hiked pension age from 2034 to 2026 would reduce this spending to 5.8 per cent, the PPI estimated.

But Andrew Harrop, head of public policy for Age Concern and Help the Aged, warned of the perils of increasing the state pension age.

"Bringing changes to the age limit forward without sufficient lead time could have serious implications for those already approaching the age when they expected to be able to claim their state pension."

Harrop added pensioners would benefit more from the removal of the default retirement age, under which employers can force workers out of a job at 65.

"The 2010 review is too late for people who need to continue working now; this outmoded law must be scrapped immediately," he said.