Response to the State Pension age increase
19 Jul 2017 - Estimated reading time: 2 minutes
Calum Cooper, Partner at Hymans Robertson responds to the government’s announcement to increase the state pension age (Spa) to 68, seven years earlier than initially planned:
“It’s become impossible to ignore the fact that longevity has shot through the roof in recent years while the State Pension age has barely moved. It desperately needed to catch-up. The Government’s decision to bring this forward by seven years should be welcomed, particularly in the context of fairness to future generations. Despite recent slowdowns, life expectancy has risen considerably and at a pace higher than previous legislation allowed for.”
“However, Club Vita’s latest research, in collaboration with the PLSA, has found that while longevity improvements have been slowing for the average UK citizen – this masks what’s really going on. For men considered “affluent”, life expectancy has continued to increase whilst the same cannot be said for the “hard-pressed” or “making-do”. It’s fair to say the effects of an increase in SPA will not be felt equally by all.
Discussing the implications for pension schemes, he added:
“Not only has it never been more important for Defined Benefit (DB) pension schemes to consider the effects of longevity trends on their liabilities, but it’s also vital they consider their communications to members. Many DB open schemes now have retirement ages linked to SPA to manage longevity risk. In fact, we may now see more schemes link their retirement ages to SPA for future service as a means to maintain affordability and reduce longevity risk.
“Defined Contribution (DC) schemes should also be considering how this affects members. This will have a bearing on how employees should plan and provide for retirement. It may mean saving more or working a little longer for those affected. Schemes should be ensuring they communicate this change to members and what it could mean for their retirement outcomes.”