Secretary of State for Work and Pensions, David Gauke MP. (Photo by Leon Neal/Getty Images)
Why the rush to hike the State Pension age?
One of the first jobs for the newly appointed Secretary of State for Work and Pensions, David Gauke MP, is to publish a report on the outcome of his department’s review of State Pension age.
We know that a draft report to Parliament had been prepared when the general election was called. It is highly likely that report made the case for increasing State Pension age for millions of people in their 30s and 40s and perhaps even further increases for those even younger. This would be a mistake.
But the best decision the Secretary of State could make is to make no decision at all.
The requirement to review State Pension age comes from section 27 of the 2014 Pensions Act. That Act says that the Secretary of State’s report should have been published before 7 May, so it’s already late.
The previous Secretary of State commissioned two independent reports – from the Government Actuary and an independent reviewer. The most high profile recommendation was to bring forward the increase in State Pension age to 68 by seven years so that it is phased in between April 2037 and April 2039.
The Government Actuary’s report included projections for when State Pension age could reach 69 or 70 under different scenarios and sets of assumptions.
But there is a new political environment post-general election, a new Parliament and a new Secretary of State.
The new Secretary of State should take a fresh look at the issues. If he does that, he will realise that the best decision for now would be to keep State Pension age unchanged.
No pensions timebomb
Gauke should ignore those who warn that we face a pensions timebomb that requires urgent action on State Pension age because:
- The Conservative Party does not have a mandate to increase State Pension age. A key reason it failed to win an overall majority is because there was a higher turnout from younger people who, it seems, were particularly motivated by a sense that they have been treated less fairly than other generations. Increasing State Pension age for this group would exacerbate, rather than resolve, this group’s sense of grievance.
- A period of stability is needed. State Pension age was increased by legislation passed in 2007, 2011 and 2014. Further change now risks undermining public confidence in pensions.
- Estimates of the most appropriate State Pension age under certain scenarios are extremely sensitive to assumptions about future improvements in longevity. The Government Actuary’s report showed that the projected increase to 68 would be complete by April 2035 under the assumptions behind the 2010-based population projections. This slipped to April 2041 using the assumptions from the 2014-based population projections (the most recent available). If this trend continues, a decision today to change State Pension age for future retirees could prove to be premature. Deferring a decision for just three years would mean that information from the 2016 and 2018 population projections would be available to inform Parliament’s decision.
It is difficult to think of any good reason why increasing State Pension age has to be decided now.
A decision about what State Pension age should be in the mid-2030s can be made just as easily in three years’ time.
Thanks to the extra information available then, a deferred decision would be a better decision.