On the Postponement of Increases in State Pension Age through Health Improvement and Active Ageing
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On the Postponement of Increases in State Pension Age through Health Improvement and Active Ageing Leslie D. Mayhew 1 Received: 6 May 2019 / Accepted: 31 July 2020/ # Springer Nature B.V. 2020
Abstract The UK population is predicted to grow from 65 m in 2015 to 71 m in 2030 and 75 m in 2040, with the number aged 65-plus rising to 18 m. Successive governments have been reluctant to increase taxes but this looks increasingly unsustainable, if the increasing demand for health and social care is to be met. Increasing state pension age is the customary response for keeping pension contributions and benefits in balance in Pay As You Go (PAYG systems). However, this policy raises concerns about the capability of people to work to ever higher pension ages. Using newly available labour market data on health and disability, the paper finds limits to how far pension age can be increased without necessary health improvements. If improvements were forthcoming, planned pension age rises could be postponed. However, inequalities in healthy life expectancy across the UK are a major barrier to its achievement. Keywords State pension age . Activity rates . Health inequalities . Active ageing
Introduction The term ‘dependency trap’ is sometimes used to describe a society that is sleepwalking into a conflict between the competing needs of an ageing population for a decent pension and a working-age population that is struggling to save for retirement, with the issues compounded by inequalities in health and income. With global ageing well underway, this is a long recognised problem facing all advanced economies – being able to afford the cost of growing old whilst maintaining growth (e.g. World Bank 1994; Disney 1996; McKellar et al. 2004; Pensions Commission 2004; Active Age Consortium 2006; Mayhew 2009). This research considers how
* Leslie D. Mayhew [email protected]
1
Faculty of Actuarial Science and Insurance, City, University of London, 106 Bunhill Row, EC1Y 8TZ London, UK
L. Mayhew
general improvements in the health of the population could enable people to work for longer and therefore postpone or stave off future rises in state pension age. In the UK the basic state pension is part of a multi-pillar system which includes occupational and private systems, but key differences are that it is a flat rate payment and dependent on an individual’s contribution record (Mayhew 2001). Payments commence once a person reached state pension age (SPA) which from October 2020 will be 66, the same for both men and women (previously 65 for men and 60 for women). The pension rules are the same for everyone although those with higher incomes contribute more. Payments continue until death and so the total amount received in a life time varies accordingly with one’s age of death. For many SPA signifies retirement age, but in the future we will be required to work for longer before we get our pension. In a Pay As You Go (PAYG) pension system a balance must be struck between raising taxes and limiting the financial burden on working fa
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