One of the pensions announcements in the Budget last week which got less coverage amongst the talk about freedom and the death of the annuity was the one about the minimum age at which pension benefits will be able to be taken in the future. In this respect the Government appears to feel that less freedom is preferable.
Historically the minimum age was 50 except for a list of exempted professions kept by HMRC (or the Inland Revenue as they then were) which included professional footballers. However in 2010 it was increased to 55. From 2028 it is proposed that it is going to be increased again, to 57, thereafter linked to increases in the State Pension Age (SPA).
PwC have projected that, assuming the policy of linking SPA to life expectancy continues into the future, we can expect a SPA of 77 by 2089 and 84 by 2134. If this all sounds a little futuristic, it does highlight a concern about the Government proposal of using SPA minus 10 (or even SPA minus 5 which is also being consulted upon) as a national minimum pension age.
The Office of National Statistics (ONS) have produced an interesting split of both life expectancy at birth (LE) and healthy life expectancy at birth (HLE) by deciles of deprivation. Graphing these with the steadily increasing SPAs shown in black and the minimum pension ages in red we can see that the bottom male and female 10% by deprivation already have a healthy life expectancy below the current minimum pension age, with a further 10% being caught by the increase to 57.
Admittedly we might hope for an increase in both life expectancy and healthy life expectancy at all levels by 2028, but the differentials between the poorest and the richest in this respect have been widening for some time. Certainly if the SPA minus 5 idea is adopted, giving a minimum pension age of 62 by 2028, it is difficult to see the bottom deciles reaching that age in good health. And what about a minimum pension age of 67 by 2089 (72 if SPA minus 5)? Do we think that we have policies in place to increase the healthy life expectancy of the bottom decile by the 15 years (or 20 years if SPA minus 5) that would be required to allow them to retire in good health, even assuming they felt able to do so financially?
As I have mentioned before, I think the Government needs to consider ill health early retirement to a greater extent in its policies towards state pension benefits, but this may be particularly urgent with respect to minimum retirement ages. The main problem as I see it would be the assessment of ill health, bearing in mind the current ATOS fiasco.
One alternative approach might be to try and maintain the minimum pension age as a proportion of SPA rather than a fixed number of years earlier. So, for instance, the current proportion (55/65 or 85%) would give a minimum pension age when SPA reached 77 of around 65.5 rather than the 67 proposed.
Leaving the proposals as they stand, however, is likely to lead to an increasingly ill elderly workforce engaged in the lowest paying and most physically demanding occupations. Not free, and without choices. That doesn’t sound like an election winner to me.