From the TUC

Increasing the state pension age

24 Jun 2010, by in Pensions & Investment, Working Life

The headline grabbing element in today’s pensions announcement is the review into increasing the state pension age for men to 66. Unlike our hopes for the auto-enrolment review, there can’t be much doubt that this is a done deal given George Osborne’s announcement at the Conservative Party conference (even if Steve Webb was sceptical of the figures quoted at the time – though to be fair he did not oppose the idea.)

One welcome element today is the new government’s decision to end the statutory retirement age. While Labour was reviewing this, frankly they could have been bolder. Their fear of ever going against employer lobbying made them move at a glacial pace, although everyone involved in the debate knew that it was bound to happen sooner or later.

No-one can deny that people are living longer, and that more people want the chance to work beyond an arbitrary retirement age. People have been talking about a flexible decade of retirement for many years so that we end the cliff-edge approach to retirement – one day you do your last day of full time work, and the next start retirement.

But we are not going to achieve this by a quicker than expected increase in the male state pension age from 65 to 66. More than half (53 per cent) of 64 year old men are already economically inactive – and only 2 per cent are inactive but seeking work. And while working longer on a flexible basis may be attractive for some – and not just knowledge workers – there will be many, particularly those doing heavy physical or tediously repetitive jobs that will not want to work extra years and see this as ‘work til you drop’. I said more about this in reponse to Vince Cable in an earlier post.

A more flexible approach to retirement would also have to look at employer attitudes to employing older workers and new rights for flexible working that gave people a realistic prospect of constructing their preferred transition from work to retirement.

While people are living longer the gap in life expectancy between rich and poor is getting wider:

  • In 1972 65 year old professional men could expect to live 2.5 years longer than unskilled men
  • The gap had risen to 4.2 years by 2002
  • If the state pension age went up to 70, the goal of many right wing think tankers, professionals would lose 27%  of their current expected retirement, while the unskilled lose 35%.
  • male life expectancy at 65 in Kensington and Chelsea is 23 years, in Glasgow it’s 14.

One criticism made of George Osborne when he made his initial announcement at the Conservative Party conference was that he did not seem to be aware of the gender dimension to this issue. It should not be forgotten that the retirement age for women is inceasing in stages from 60 to 65, so a key challenge for the review is what happens to women. Making the gap between the state pension age for men and women bigger would be a breach of EU sex discrimination law so women are bound to face some change in their circumstances too.

EU sex discrimination law  does not allow different ages for benefits. So currently even though men only become eligible for a state pension at 65, they can claim the means tested guarantee credit. This does provide some relief for poorer economically inactive men facing an extra year’s wait before they get their state pension (as long as women don’t face a steep rise to 66 too).

But the triple lock on the state pension uprating (the higher of earnings, CPI or 2.5 per cent) does not apply to guarantee credit. This is newly linked to CPI and will therefore go up more slowly than it did when linked to RPI if past trends are repeated.

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