Key points:

• The state pension age (SPA) hasn’t changed since 1925 (except equalisation between men and women);
• Back in the 1920s, you would get 1 year of state pension for every 4 years working (and you had a much lower chance of ever making it to SPA);
• Today, on average, people receive 1 year of state pension for every 2 years of working;
• The ‘healthy wealthy’ currently expect to receive state pension for almost twice as many years as the ‘unhealthy poor’ – assuming they both make it to 65;

Commenting on the need for state pension age (SPA) reform, Steven Baxter, Partner at Club Vita, the longevity services provider, said:

“We have to remember that, despite steady improvements to life expectancy, we haven’t had changes* to State Pension Age (SPA) for 90 years. SPA was set at age 65 in the 1920s. A typical person in 1925 would receive state pension for around 8½ years. Someone receiving state pension today will live for around 17 years.

“We can’t escape the fact there is a lot of catching up to do. Back in 1920s, an individual would receive 1 year of state pension for every 4 years working - and you had a much lower chance of ever making it to SPA. Today it’s typically 1 year of state pension for every 2 years working.”

Discussing why it’s important to look beyond the averages when looking at life expectancy, he said:

“When it comes to life expectancy averages can be deceptive. One question that may be asked is if SPA should be linked to healthy life expectancy rather than average levels. Healthy life expectancy isn’t increasing as fast as overall life expectancy and we’re going to be in ill health for longer. For every year of extra life expectancy gained, only 9 months of that will be ‘healthy’. 

“To put this in context, the ‘healthy wealthy’ currently expect to receive state pension for almost twice as many years as the ‘unhealthy poor’ – assuming they both make it to 65. 

“Increasing SPA will hurt those in lower socioeconomic groups with shorter life expectancy most. And it is these people who are also most reliant on the state pension. Increasing life expectancy linked to averages could mean that we end up rearranging the deck chairs in terms of state spend, as these groups may end up falling back on other benefits.

“That said, linking SPA to socioeconomic grouping would be complicated and there is a strong argument for focussing efforts on tackling wealth inequality at its roots, rather than around the state pension.

“One group that could be particularly affected by SPA increases is the ‘sandwich generation’. These are people coming up to retirement with less chance of having a generous DB pension and with low levels of DC savings, who may have elderly parents to care for. They may be looking for more flexible working patterns, and may have depended on state pension to enable them to do this. They will feel the squeeze.

Commenting on how SPA should be set:

“The basic principle underlying changes to the SPA is that for every 2 years spent working from age 20 to SPA, individuals should be entitled to at most one year of state pension. There is a difficult balance to be struck between keeping the percentage of GDP spend on state pension at an affordable level and ensuring cuts to state pension spending don’t mean an increase to other benefit spend. Given the savings car crash we’re heading for as a nation, there are no easy answers.

“It’s also highly political. Many would argue that SPA should be set by an independent body in the same way that interest rates are set.”

* aside from reduction in SPA to 60 for women and the current equalisation back to 65