8th July 2013
The Department for Work and Pensions has just pointed out that more than a third of children – including royal children of course – born in England and Wales this year are likely to live to 100 years old.
This is welcome news which suggests that for all our societal and economic ills some things are still getting better. But the ministry may be using the example as a little bit of a public relations exercise to get people used to taking their state pension later than usual. John Lappin considers a few of the implications.
First of all, here is the good news about people living longer using the Royal family to signify changing times. The notes from the DWP are in italics.
The chance of reaching this “impressive milestone” has grown dramatically and has increased with every royal birth over the past 87 years.
In 1926, when Queen Elizabeth was born, life expectancy was 70.6 for a baby girl and the chance of living to 100 was only 3.4 per cent.
For Prince Charles, born in 1948, the life expectancy for a boy was 77.4 with an 8.2 per cent chance of living to 100.
In 1982, when second in line to the throne and the soon to be father Prince William was born, there was a life expectancy of 85.2 years at birth for a boy with a 19.5% chance of living to 100.
This has improved even further as girls born this year will have an average life expectancy of 94.3 years and an over 39 per cent chance of living to 100, while boys will have a life expectancy of 90.9 and just under a 33 per cent chance of living to 100.
That is the good news. Here is the somewhat less good news which involves the state pension.
As well as being the year of the Queen’s birth, 1926 was the year when a man’s State Pension age was pinned at 65 and has remained so to this day, despite improving longevity. Around 1 million people aged 65 or over are now in work and this figure will soon include Prince Charles who will reach State Pension age in November.
The pension minister Steve Webb adds a quote too. He says: “Over the past 87 years, life expectancy has grown by more than 20 years, and for a baby born this year the chance of living to 100 is over a third. Yet the State Pension age has not kept up with our changing longevity.
“We are reforming the State Pension so it is sustainable for the future. As well as providing a basis for saving we are going to introduce an independent panel who will look at state pension age to ensure it reflects how people live and work.”
“The state pension age will rise to 67 by 2028 and the government are bringing in a simple single tier pension so people will know what their state pension will be and can save more for a comfortable retirement on top.”
The Pensions Bill, currently in committee stage in the House of Commons, proposes a review of the State Pension age once every Parliament.
If you are approaching retirement, the changes to the state pension retirement age may or may not have alarmed or angered you, but women in some age groups certainly felt they had definitely not been given enough notice about an abrupt increase nor crucially enough time to build up savings to make up for it.
In fact, there are a host of uncomfortable issues to consider. What is known as the dependency ratio, the ratio of those working to not working, is unfortunately moving in the wrong direction mostly because the number of retirees is increasing dramatically as people live longer.
This has huge implications, not just for pensions, but for the NHS and also for long term care. All are the subject of arguments about reorganisations and funding. Most debates mention demographics, but it isn’t necessarily clear that the full import of these changes has sunk in with the public.
What it means for individuals is that the more you invest and save now the better, and it would be good to think that as savvy readers of Mindful Money are doing this already.
The state pension is a very useful base for that, but it may not be as generous in future or available at anything close to the current age. This new flat rate pension system that the pension minister is talking about and indeed talking up may be the right approach in principle. However those who have built up a lot of earnings related pension may well lose out, so simple or not, they may not like it in practice.
But there will probably be more change to come. For Mindful Money, this review is one to watch because it suggests that the longer people live on average, the more rapid the rise in state pension age could be.
There is one big problem with this approach which doesn’t get debated much and that is whether people will really be capable of significant amounts of work at a more advanced age. And of course, while even ardent republicans acknowledge that the Queen is a very hard working women, who only now may be cutting her commitments back a little, manual workers to pick one group, may not be able to continue in their previous occupations and are more likely to be unable to work at all.
Unfortunately that capacity to work does not always rise as rapidly or in proportion to life expectancy, so while we are not criticising the pension minister (this week at least) and he deserves some praise for raising the issue, it shouldn’t be assumed that life expectancy and the pension age should or even can rise in line with each other.
* The source for the population statistics is the Office for National Statistics website.