Club Vita respond to Cridland's Independent Review of State Pension

23 March 2017

Retention of the universal State Pension age reflects the narrowing socio-economic longevity gap and is good news for intergenerational fairness, but society needs to make a choice between working longer or a more generous state pension.

  • There is a pay off between retaining the triple lock and State Pension Age (Spa). A balance needs to be struck between avoiding pensioner poverty and intergenerational fairness
  • We have to make a choice as society – a state pension which maintains its purchasing power and is available sooner, or a more generous state pension which we have to wait longer for
  • The pace of change in longevity increases is far higher than current legislated increases to Spa. In that context Cridland’s proposals make complete sense
  • The gap in life expectancy between pensioner socio-economic groups has continued to narrow
  • There are disparities across regions, but these would be better to be addressed by focussing on increasing healthy life expectancy

The retention of a universal State Pension as recommended by Cridland in the Independent Review of State Pension age (SPa) is absolutely right, given that the gap in life expectancy between socio economic groups has continued to narrow, according to Club Vita, the longevity services provider. Club Vita has identified three different socioeconomic groups which have different life expectancy experiences. These are the ‘comfortable’, ‘making do’ and ‘hard-pressed’.

Commenting on the recommendation to bring forward the rise in SPA to 68, Steven Baxter, Head of research and development, said:

“It is tempting given recent slower life expectancy increases to retain the existing schedule of SPa increases. The Review’s recommendation to bring forward the rise in SPa to 68 recognises that the recent slowdown is against the backdrop of a SPa that has barely moved while longevity has shot through the roof. We are still playing catch up.

“Since 2000 life expectancy has risen by between 1.9 for ‘making-do/comfortable’ women and 3.1 years for hard-pressed men*. This pace of change is much more rapid than the three year rise in SPa currently legislated to happen over the 28 years from 2018 to 2046. Bring this forward to 2039 would be much more in line with recent trends. This is good news for inter-generational fairness.”

Commenting on the review of the triple lock:

The government has three levers to manage state pension costs – SPa, the amount of the state pension and the rate it increases each year. The government is committed to a universal flat rate pension at a level which provides a basic safety net. Ultimately we have to make a choice as society – a state pension which maintains its purchasing power and is available sooner, or a more generous state pension which we have to wait longer for.”

Commenting on the report’s recommendation to retain a universal State Pensions, Steven said:

“According to our analysis, since 2000 there has been a reduction of the longevity gap across pensioner socio-economic groups. It has fallen from 3.6 to 3 years between ‘comfortable’ and ‘hard-pressed’ men and from 2.1 years to 1.7 years between ‘making-do/comfortable’ and ‘hard-pressed’ women. This is good news on fairness between socioeconomic groups and it is reflected in the report’s recommendation to retain a universal State Pension.

“If, in the future, this socio-gap begins to widen again then we would need to reassess whether we retain a universal Spa. If the gap increases, it would be fairest to sacrifice some simplicity and move to a SPa which varies depending on whether an individual has high, medium or low career earnings.”

Commenting on the narrowing gap in socio economic life expectancy, the need to focus on healthy life expectancy and early access, he continues:

“The narrowing of the gap since 2000 may be due to the benefits of smoking cessation ‘cascading’ down to lower earnings groups. This is good news and supports retention of a universal SPa. Health information tends to cascade through groups in society. Early adopters are often the most educated, who are most likely to be in our ‘comfortable’ group.

“Typically 8 months of every year of extra life expectancy are years of good health although there are great disparities in this. If someone is in extreme poor health and can’t work it might be reasonable for the state to step in, but the Review rules out early access to state pension for those in ill health. Early access would be very challenging and an inevitable burden on GPs to provide assessments. Instead the focus should be on closing social inequalities in health and improving healthy life expectancy. This would also reduce health and welfare costs. There is a missed opportunity for the review to refocus the debate to linking State Pension age to healthy life expectancy.”

Commenting on the need for realism in SPa and longevity predictions:

“It is important that there continues to be a dose of realism into how SPa is set particularly in the uncertainty in the longevity projections underpinning decisions which will impact millions of people.

The longevity predictions used to determine the SPa could also be calculated in a fairer and more realistic way. Alongside the Independent Review a schedule of increases in SPa has been produced using a formulaic link to projections of future life expectancy**. This relies on projections forecasting life expectancy many decades into the future and estimates of death rates some 60 to 100 years ahead. It is highly likely that the future will differ, possibly quite markedly, from what is suggested by today’s longevity predictions. Instead it would be better to make SPa revisions based on the certain knowledge of how life expectancy has increased in recent years***.

“We wouldn’t have expected someone in the 1930s to predict today’s world, yet longevity predictions made today for 80+ years into the future will materially impact the state pension outcomes for millions of people. The formulaic link to longevity creates a false illusion of certainty which is likely to undermine confidence in the pension systems when it is inevitably revised. It would be fairer and more responsible to suggest to those in their 20s and 30s that there is an expected SPa of, for example 68-72; with a promise to confirm their SPa when they are in their late 40s/early 50s.”

*Club Vita analysis of data covering 1 in 7 of all UK pensioners. This analysis has identified socio-economic groups who are experiencing clear differences in longevity trends: ‘comfortable’ ‘making-do’ and ‘hard-pressed’ men; and making-do/comfortable’ and ‘hard-pressed’ women.

** The Government Actuary’s Department have been asked – alongside the Independent Review - to calculate a schedule of SPa increases based upon the principle of receiving the State Pension for, at most, 1 year in every 3 of adult life (where adult life includes the period in receipt of State Pension). This is equivalent to receiving at most 1 year of state pension for every 2 spent working.

***There are two measures of life expectancy: period life expectancy uses observations of the proportion of people currently dying at each age; cohort life expectancy seeks to reflect the ultimate lifespan of each generation by projecting what death rates will be at each age by the time successive generations reach that age. The formula used by the DWP uses cohort life expectancy – we advocate greater emphasis on period life expectancy and how that has been observed to change in recent years.

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