It is widely agreed that state pension age (SPA) needs to rise to reflect the financial downside of the happy prospect of greater life expectancy. The current government is committed to this, albeit over a leisurely time horizon. George Osborne recently kicked up a bit of a storm by suggesting bringing forward the process and raising men’s SPA to 66 as early as 2016.
Part of the political difficulty of bringing this in arises from the assumption that we must change SPA by one year at a time, which leads people to complain bitterly that they could have had a year’s extra pension if they’d been born a few days earlier. But why do this? Why not advance pension age more gradually, say by three months per year for several years? The differential impact would be hardly felt by individuals. And as life expectancy at retirement is anyway rising by around two months or so per annum, it could be presented as “fair” between cohorts.
One of the attractions of this idea is that we could begin almost immediately – say 2011.
If a man was due to reach SPA on January 1st 2011, he would instead do so on April 1st. The next year, a man reaching 65 on January 1st 2012 would be pensionable on July 1st. This process would continue until whatever was deemed the appropriate long-term SPA. The process for women would take longer as the process of equalisation of SPA has yet to begin.
Doing this would bring immediate fiscal benefits. Under the current dispensation, just under 680,000 people become pensionable in 2011. If their pensions were delayed for three months, the net saving could be of the order of £700-800 million in the first year and £1.5 billion in the second year (allowing for some extra payments in income support etc for those who are not in employment on reaching current SPA).