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Delaying the rise in the UK state pension age until 2044-46 risks costing the government more than £60bn, according to research by a leading think-tank.
The state pension age, now set at 66, is set to increase to 68 after 2044. The government wanted to bring this rise forward to 2037-39, with the plan due to be confirmed in May, but will now push the decision beyond next year’s election, according to officials.
However, in a report published on Saturday, the Institute for Fiscal Studies said sticking to the current deadline could cost the Treasury up to £9bn for each year that the rise is delayed. Most of that would be “simply due to paying the state pension for longer”, the think-tank said.
“There are significant long-term fiscal challenges coming from the ageing population,” said Jonathan Cribb, IFS associate director.
However, according to the most recent projections by the Office for National Statistics, life expectancy has fallen since 2016, when the data was used in the first independent review of the state pension age.
For men, life expectancy at 50 had dropped to 83.9 in 2020, down from 85.6 in 2016. Over the same period, the figure for women fell to 86.7 from 88.1.
“This provides a justification for delaying the rise in the state pension age . . . but to do so would cost money,” said Cribb.
According to estimates from the Office for Budget Responsibility, the independent fiscal watchdog, the state pension bill will rise from £110bn in 2022-23 to about £148bn by 2027-28.
From April this year, people eligible for the full new state pensions are set to receive £203.85 a week. The majority of pensioner households obtain more than half of their income from the state.
Additionally, the IFS noted that when the state pension age was last raised from 65 to 66 between 2018 and 2020, income poverty rates among 65-year-olds increased from 10 per cent to 24 per cent.
“The government should consider what additional support should be provided to those on lower incomes, and those in poor health, in their mid-60s when the state pension age increases further,” it said.
The effects of further rises in the pension age would depend on the size of the generations affected, the labour market’s response to the change and the level of the state pension, the IFS said.
France has been hit by riots over President Emmanuel Macron’s plan to raise the retirement age, while in the UK Tory MPs have urged a delay, arguing that ordinary voters would resent having to work longer after tax rules on pensions for wealthier people were relaxed in the Budget.
The Department for Work and Pensions said the government “was required by law to regularly review the state pension age and the next review will be published by May 7”.
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