The government has launched the next review of the state pension age.
The review - published yesterday (14 December) - will consider whether the rules around pensionable age are appropriate, based on the latest life expectancy data and other evidence.
The Pensions Act 2014 requires government to regularly review the state pension age and, in accordance with law, this latest review must be published by 7 May 2023.
The state pension age is currently 66 and two further increases are currently set out in legislation - a gradual rise to 67 for those born on or after April 1960; and a gradual rise to 68 between 2044 and 2046 for those born on or after April 1977.
The first review of the state pension age was undertaken in 2017 and concluded that the next review should consider whether the increase to age 68 should be brought forward to 2037-39 before tabling any changes to legislation.
The Department for Work and Pensions said that, as the number of people over state pension age increases due to a growing population and people on average living longer, the government needs to make sure decisions on how to manage its costs are, robust, fair and transparent for taxpayers now and in the future.
It said it must also ensure that as the population becomes older, the state pension continues to provide the foundation for retirement planning and financial security.
This review will consider a wide range of evidence - examining the implications of the latest life expectancy data; providing an assessment of the costs of an ageing population and future state pension expenditure; consider labour market changes and people's ability and opportunities to work over state pension age; and develop options for setting the legislative timetable for state pension age that are transparent and fair.
Secretary of state for work and pensions Thérèse Coffey has commissioned two independent reports to contribute to the evidence considered during this review - a report from the Government Actuary and a report on other factors.
The Government Actuary will provide a report which must assess the age of entitlement in legislation by analysing the latest life expectancy projections;
The report on other relevant factors will consider recent trends in life expectancy and the range of metrics the government could use when setting state pension age. It said this is to ensure the way it sets state pension age is robust, transparent and provides fairness to both taxpayers and pensioners. This report will be led by Baroness Lucy Neville-Rolfe.
A brake on pension age rises
Hargreaves Lansdown senior pensions and retirement analyst Helen Morrissey said the review could "put the brakes on rises in the state pension age".
She said: "With increases in life expectancy slowing and the long-term impact of Covid as yet unknown, this review comes at an interesting time.
"Part of the review will look at changes in life expectancy. While it had been proposed that the increase in State Pension Age to age 68 should be moved forward to 2037-39 - from 2044-46 - an analysis of the latest life expectancy data as part of this review could stop this in its tracks.
"It will also consider other factors that feed into the debate on state pension age. This includes regional differences and should open the debate about healthy life expectancy - the ability to keep working - and how it varies hugely across the country. Someone might have a life expectancy of 80 but not all that time will be in good health and many people will find it impossible to work up to and beyond current state pension age."
Morrissey noted that recent data from Public Health England showed a man in Kensington has a life expectancy at birth of 84.2 and a healthy life expectancy of 61.3. Meanwhile a man in Blackpool has a life expectancy of 74 but a healthy life expectancy of 53.7.
But she said the government must balance this with meeting the enormous ongoing cost of the state pension.
She added: "With a Covid bill to pay the triple lock has come under intense pressure, and earnings data has been abandoned for this year in favour of an inflationary increase. It raises the possibility that this review could prompt a closer look at the triple lock."
Inflation threat to increases
This comes as the Office for National Statistics found that UK inflation had soared to its highest level in a decade, hitting 5.1% in November.
Lane Clark & Peacock partner Steve Webb said the surge in inflation may lead to pressure on the government to reconsider the April 2022 pension increase.
Next April, the state pension is due to rise by 3.1%, in line with the rise in the Consumer Prices Index (CPI) in the year to September 2021. But this morning's figure for CPI is an increase of 5.1%, with further rises expected between now and next April.
He said that, without further action by the government, this could lead to a significant squeeze in the living standards of more than twelve million pensioners.
Webb said: "Unless the government re-thinks the 3.1% state pension increase, 12 million pensioners could face a significant squeeze on their living standards next year. Not only will state pension payments fall in real terms, but income from private pensions will be squeezed, and inflation will eat away at the value of savings held by pensioners in cash ISAs and bank accounts.
"The government has shown that it can change Universal Credit rates at short notice when it wants to, and it will now come under pressure to re-think the modest state pension increase it had planned for April 2022."