The Oxford Institute of Ageing released a paper last week, ‘Living longer and prospering?’, that advised making drastic changes to the current state pension system, if the system is to remain sustainable and fair for all. The paper, which drew data from more than 1.7 million anonymised pension records since the 1970s, sparked an interest in the media on how Britain might deal with an increasingly retired population in a time of austerity.
Last October the government announced that the state pension age, which is currently 60, would be raised to 66 in 2020. Although this would save the state about £30 billion in the next 15 years, the paper’s authors argue that this will not be enough to sustain the system in the coming decades. Their findings show that the rise in life expectancy is likely to continue to outpace the planned rises of the state pension age, disrupting the critical ratio between workforce and pensioners. They also point out that life expectancies vary widely across the UK, and there is a strong correlation between lifetime earnings and life expectancy. To ensure a more fair and sustainable system, the government should adopt a flexible approach to paying state pension benefits, taking into account life expectancy and the impact of several years of poor health later in life.
Professor Sarah Harper, Director of the Oxford Institute of Ageing and joint author of the paper says, ‘What has made pension sustainability so crucial is that the steady increase in life expectancy is occurring in the context of population ageing. There are going to be fewer younger workers supporting a much bigger elderly population.
‘Furthermore the regional differences are significant. Our data revealed a 13 year gap in life expectancy at 65 for men and a 16 year gap for women between those living in the top most affluent areas and those in the bottom least well off areas.’
The paper was co-authored by Dr Kenneth Howse of the OIA and Stephen Baxter, a longevity consultant with the firm Club Vita. Baxter elaborates, ‘We should also acknowledge that a one size fits all system is no longer suitable. The degree of variation in life expectancy across the UK means we cannot hope to have a fair system based on the present one size fits all retirement age.’
The Financial Times, among others, reported on the results of the paper, and noted that other countries, such as Sweden, Italy and Poland have successfully adopted variable pension schemes. As the government plans further cuts to public services, OIA’s research is critical in addressing the needs of older citizens.