Work and Pensions Committee
Oral evidence: Transition to state pension age, HC 1482
Wednesday 10 December 2025
Ordered by the House of Commons to be published on 10 December 2025.
Members present: Debbie Abrahams (Chair); Rushanara Ali; Lee Barron; Johanna Baxter; Steve Darling; Amanda Hack; John Milne.
Questions 1 - 37
Witnesses
I: Jonathan Cribb, Deputy Director, Institute for Fiscal Studies; Chris Curry, Director, Pensions Policy Institute.
II: Patrick Thomson, Head of Analysis and Policy, Standard Life Centre for the Future of Retirement; Andrea Barry, Deputy Director for Work, Retirement and Transition, Centre for Ageing Better; Ben Franklin, Deputy Chief Executive, International Longevity Centre.
Witnesses: Jonathan Cribb and Chris Curry.
Q1 Chair: A very warm welcome to this first evidence session for the transition to state pension age inquiry. It is a pleasure to welcome our first panel: Chris Curry from the Pensions Policy Institute and Jonathan Cribb from the Institute for Fiscal Studies. A very warm welcome to you both. I will kick off the questions, and then we will go around.
The terms of reference for the Pensions Commission are really broad in scope, particularly in what it has been asked to do around adequacy. First, what do you think are the key things it needs to look into? Secondly, given the very broad terms of reference around adequacy, what do you think its focus should be?
Chris Curry: Good morning, everybody. I’m delighted to be here and thank you for the invitation. I agree that the remit for the Pensions Commission is broad, and personally I welcome that. Initially, when phase two of the pension review was being talked about as a review of adequacy, there was always concern that it would focus on adequacy, rather than some other key metrics which are very important in the pension system. The fact that fairness and sustainability are specifically mentioned as well as adequacy is very much to be welcomed.
It is clear that, whatever pension system you have, there is a real trade-off between those three elements, so making sure that the commission is taking a fairly holistic view of the pension system is really important. The key areas to look at are almost certainly brought out in its remit and its terms of reference. Building on the state pension and looking at the private pension system is important—looking at those things together, not in isolation, so as to take a view as to how they interact with each other and how they vary across different parts of the population. A focus on those individuals who are most likely to suffer from poverty in retirement outcomes is also very welcome, and that is why the fairness element of this part of the remit is important as well.
Q2 Chair: The state pension is not explicitly present in the terms of reference; is it something you think should be included in the overall review?
Chris Curry: It has to be. It is mentioned very briefly as the foundation for the private pension system, but it clearly needs to be working as a foundation in order for that part of the remit to be fulfilled.
The current work on the state pension age review needs to be fed into the Pensions Commission’s work on an ongoing basis, because that is where you need to look at the interactions between what is happening with the state pension and what might happen on top of that in the private pension sector. If you look at one without the other, you tend to find gaps appearing where there is an assumption or expectation that different parts of the system will work for other people. We need to make sure that all those things are covered.
Q3 Chair: Jonathan, what do you think about the broader remit? What does it need to focus on in the state pension in relation to adequacy?
Jonathan Cribb: Thank you for having me. I would echo essentially everything that Chris said. First, it is a good thing that the Government are doing this. It has been 20 years since the last Pensions Commission, so the Government should be praised for grasping this. There have been a lot of economic and policy changes. Hopefully, this will lead to policy change in the future.
I completely agree that it is very hard to think about a good private pension system without thinking about the extent to which the state supports people through the state pension system. The previous Pensions Commission did that, and we are essentially living in a better pension system because of those changes.
One thing that is going to be difficult for the commission—it is difficult for anyone thinking about the pension system—is that there is a case to keep on broadening scope. That makes it very difficult to think about, as it can expand enormously. For example, two areas I am sure the commission is getting pressure to think about are social care and housing. Those are enormous policy areas in and of themselves, but the costs that people face for social care are important when thinking about a good level of retirement finance for people to have. The extent to which people own their own home or are in a secure social tenancy is going to be extremely important when thinking about adequacy. The difficulty is that housing and social care are themselves fairly substantial and intractable policy problems that I do not think the Pensions Commission is going to fix. I know it is going to get pressure to continue to broaden that out.
Q4 Chair: The first Pension Commission set targets. Do you support that, or do you think having guidelines and a framework around guidelines, which you would monitor and review, should be the approach that it takes?
Chris Curry: That is a difficult one to answer. You are right that the last commission set some very explicit targets, usually around replacement rates. That was its main way of measuring adequacy.
It very much depends on what it is you are trying to target and who for. For example, a measure of a replacement rate in a technical sense is probably not a bad way to look at it across a population to get a good idea of whether the system is working well or not, but it does not really work at an individual level. It is quite hard for people to understand what that means.
Other types of target have come into use a lot more since the Pensions Commission. For example, retirement living standards used by Pensions UK are much more targeted at individuals, to give them an idea of what they might need to live on for the lifestyle they aspire to. It can be quite difficult to generalise that to different individuals and there are some weaknesses. Jonathan has already mentioned that housing is a really important aspect in retirement. Retirement living standards, for example, do not take account of rents if people are still in the rented sector. We know from other work that we have done that there is likely to be a substantial growth in the number of people coming into retirement, not just in the rented sector but in the private rented sector. There is some real pressure on their needs in retirement as part of that. So it depends a little on who it is you are measuring for and where you want to get to.
There are always challenges in the measurement: what you include and the way you look at it. What is probably more feasible and potentially more helpful is to look at a range of measures, maybe some combination or index, to bring in some absolute poverty measures that we are interested in, or absolute deprivation as well as maintaining those relative living standards. That was the main focus of the first Pensions Commission but it will probably be slightly different for the second.
Jonathan Cribb: We essentially have two types of target: fixed line targets that say you are above a certain level that is adequate in some way, whether that be out of poverty or above a particular minimum line or moderate line or whatever, and replacement rates. The Government review should look at a range of these.
I would add three things. First, policy success means we do not look at one of the key lines very much anymore, which is essentially pensioner poverty. That is not to say there is no pensioner poverty and it is not to say that there will not be in the future because of people slipping through the cracks, particularly due to high housing costs, but we have a much more solid state pension system than we did 20 years ago, providing a baseline layer of income for people. This means that people do not focus as much on those falling below that line. I do not think we should just forget that policy success in a way.
Secondly, these retirement living standards are useful for individuals. They can be very volatile from one year to the next depending on the sets of things people think are absolutely key to pension living standards. They have moved around quite a lot in the last few years; I do not think that is ideal if you survey a new group of people, set prices, and the amount you are aiming for moves drastically. The target replacement rate approach allows you to question how prosperous you are in your working life and what fraction of that income you might want in retirement. That is going to be higher if you are poorer and lower if you are richer. That is a fairly good approach.
Thirdly, and the last thing I would say, is that there are political judgments to be made about how much the state is responsible for moving people towards these levels of replacement rates. When you look back at the first Pensions Commission, there was essentially a responsibility for the state to provide a certain amount on top of that through automatic enrolment, assuming you did not opt out. That would get the average person to roughly 50% or so, but it was taken to be the individual’s responsibility to make the choices that would get them up to a two-thirds replacement rate. There are reasonable differences of opinion over where the line is drawn between policymakers and the Government in being semi-responsible for getting people there versus people’s own decisions to save more.
Q5 Chair: Jonathan, in a couple of sentences, what adequacy measure do you want the Pensions Commission to adopt?
Jonathan Cribb: I would particularly focus on these replacement rates to get average earners to roughly two-thirds and low earners to 80% or so. I would not worry as much about the top decile, or even the top 20%, who can generally arrange their affairs to suit themselves.
Chris Curry: I would probably recommend looking at a combination of different measures as part of that. The replacement rates are important; they would need to be developed and evolve a little. The one big challenge with them is the impact of housing and how that varies. As Jonathan said, housing will be very important for the Pensions Commission. It is not something it can solve, but it is something it needs to be aware of and take into account when it is looking at the answers.
Q6 Johanna Baxter: Thank you for joining us this morning. You have touched on this a little already but could you say a bit more about the challenges this Pensions Commission might face that the previous one did not?
Jonathan Cribb: Some issues it deals with will be ones that were not solved by the first one—for example, low private pension saving by the self-employed. Automatic enrolment did not solve everything to do with private pension participation but it made an enormous difference. We have roughly 80% of employees saving in a private pension and roughly 20% of self-employed people saving in a private pension. The trend since the last Pension Commission has diverged; it has gone down for the self-employed and up for employees. That is much harder, because if you do not have an employer they cannot help you, so there are some difficulties there.
It is also a little harder to think, in the world of post-pension freedoms, what adequacy means, because people now take their private pensions in a wide variety of ways. Many people hold a lot in cash and do not do anything with it; other people take little pots out at a time. It is not like you get a certain amount every year that goes up in line with inflation. People do not buy annuities very much, so in that world, adequacy means you have the potential to have an adequate income but the decisions you make on how you draw your private pension will have a big impact on your actual living standards. If you are extremely conservative and worry about running out then you could immiserate yourself even if you have enough.
On the other hand, some people might not really have that much. They might have quite a good start to their retirement but a very difficult end. The Government are now interacting and doing things there. We have the Pension Schemes Bill 2024-25 but it is still harder to think about compared to a world where everyone is basically getting an annuity or a DB pension.
Chris Curry: I certainly agree that pensions are no longer seen necessarily as income. That is a real challenge and something very different from the first commission.
The underlying economic situation is obviously a real challenge at the moment, especially compared to the circumstances around the last commission, which did not have the same issues over the cost of living. Challenges in that area and the prevalence of low earnings are a big change.
Due to the success of the previous commission, one big difference is that the second is working with a system that now has a firm base and it is looking really at how we can extend it. I am talking about automatic enrolment, which was implemented on the back of the last commission. It has done most of what the initial commission thought it would do, but there is still space and a requirement for it to be evolved further. Building on top of something that already exists is a slightly different challenge; it gives the commission some implementation and delivery challenges.
The other big difference is that we are much more aware of fairness issues: the gender gap, the difference in outcomes for the self-employed, and other minority groups that Jonathan has already discussed. In the past, it was generally seen as a state problem that would be solved by the state pension. It is becoming clear that it is now feeding through into private pension provision as well. That is a challenge that was potentially not as well highlighted at the time of the first commission, but it is very important now.
Jonathan Cribb: Could I pick up on the economic situation? It is not just concerns about the cost of living but it is the fiscal space the Government have. The last Pensions Commission, as widely lauded as it was, was essentially a giveaway. Long run increases in the level of the state pension through earnings indexation were going to cost more than increases in the state pension age. Higher pension saving reduces tax Exchequer revenues now and somewhat increases them in the future.
We are in a much more constrained fiscal position now: massively higher debt with considerably higher borrowing. I cannot see that the ability for the commission to recommend the equivalent change fiscally is within scope. Maybe it is not needed, but the Government are struggling with every penny at the moment and anything that generates more saving, whether it be higher state pension spending or higher private pension saving, is going to come at an Exchequer cost.
Q7 Johanna Baxter: One of the successes of the previous commission was the fact that it built a consensus around some key recommendations. Is that something you think this commission is going to need to do? I would have thought it likely but are there particular issues you think will need engagement with stakeholders to build consensus?
Chris Curry: The last commission was very successful at doing that, and the way it did it was very important and is something the current commission can pick up on. Generally, what led to the consensus last time was the weight of evidence. A lot of research and analysis was done. In fact, the first couple of reports from the last commission were very long, detailed and analytical, but they helped people understand not just the questions but also the options and choices that had to be made, and it highlighted those trade-offs.
With the commissioners we have for the next commission, there is a very good chance that that could be replicated; I know they have the same level of interest in that space. It is important not to try to get consensus at every step of the way but instead to engage people as to why they are taking the direction they are and then, when they get to the recommendations, work at that stage to help people understand why they are the right recommendations. That will be important.
One of the challenges that this commission has that was perhaps not there in quite as much detail for the last commission is the political consensus challenge. At the moment, it is quite difficult to think how that could be approached.
Jonathan Cribb: The last commission was done in a Labour Government, legislated, and then implemented under a range of coalition and Conservative Governments. Policy consistency has been something we have essentially all benefited from, even though we need improvements. It is good that it is doing an interim report to set the scene and then build on. The political situation seems somewhat more fluid now than in the mid-2000s.
What it should think about is whether there are potential tweaks to its proposals. Could it make an overall set of proposals that whichever Government is in after the next election would be able to take forward and that are consistent with what they might want to implement? It is one thing to design a set of policies that one particular political party would want to implement, but another to think of a broad framework that could be tweaked depending on the exact Government in power.
Q8 John Milne: The pension triple lock has done a fantastic job in raising the average pensioner income from the bottom of the table of European averages to mid-table, but going forward it looks to be very expensive. What test or principle might we apply to consider at what point to alter, change or drop the triple lock?
Chris Curry: It is very difficult to see a particular test you could use. You are right in describing it; it has been very successful in increasing the overall level of the state pension. As Jonathan said earlier, it has had a big impact in reducing pensioner poverty, although some of that might be slightly undone by changes in housing coming forward. You have to look at it in the context of everything else that is going on.
It is hard to see how the triple lock will be ended without it being part of a broader review or set of changes. One of the real challenges we have is not the triple lock but the state pension. It is not entirely clear what the purpose and policy objective of the state pension is. Without knowing what that is, it is very hard to be able to determine, when you are in that space, whether you have that objective or how you then maintain that objective. It is something that the Pensions Commission should be looking at and it is something you need to look at alongside state pension age. You probably need to consider together the age, the overall level of the pension, and indexation, to work out what you think the right combination of those things is to meet the purpose that you think the state pension is for.
One of the potential big challenges for the Pensions Commission is to find that consensus as to what we think the state pension is for. We have a broad idea that it is a foundation upon which to build, but that is quite a loose definition. Other countries, for example, have explicit targets of what proportion of average earnings it might be replacing. We do not have anything like that, which gives us some flexibility but it also makes it very difficult.
The challenge with the triple lock is a political one as well. Any party that suggests it is going to remove the triple lock will pretty quickly come under fire from every other party who will then say it will not. It is a really difficult one without that consensus and overarching understanding of, “This is why we are doing it.” We just need a little more work to understand what we want the pension to do, and then it will hopefully become clearer as to how we can manage that in the longer term.
Q9 John Milne: So define the objective first which might make the political aspect a bit easier as well?
Jonathan Cribb: We have a new state pension which is roughly 30% of average full-time earnings. I agree with Chris that it is pretty hard, given where we are, to think of it as being roughly 10% higher now or intrinsically better. It is a trade-off between how much the state wants to spend and provide to pensioners. That is partly because the new state pension is at a level where the income poverty for pensioners in the future is going to be a set of people with quite unusual circumstances, particularly to do with high housing costs.
Most people will agree that the triple lock mechanism is unsustainable. Ultimately, a more sustainable mechanism will need to be found that does not ratchet it up constantly. I agree with Chris that looking at things in the round is important in trying to think about how to move to a more sustainable indexation strategy for the set of people who continue to fall through the cracks. For example, you could try to move away from the triple lock while providing some additional support for people in the private rented sector where the housing benefit is not particularly generous. There is a set of older women who reached state pension age before 2010 who have a massively less generous state pension on average. You could try to address other inequalities in the system if you moved away from the triple lock because you would have the Exchequer gain from moving away from the triple lock to address other inequalities that, as Chris said, have rightly become more high profile over the last 10 or 15 years.
Q10 John Milne: Jonathan, I know you have criticised the above earnings lock-in, which is effectively part of the triple lock. Do you think there is an alternative method of indexation, or is it necessary at all to have some protection against inflation?
Jonathan Cribb: I am a critic of the critical lock, not the triple lock, not because it generates a higher state pension but because you have no idea what the level of state pension is going to be. The fact that it has been so impactful over the last 15 years is entirely a function of how volatile macroeconomic growth and inflation have been. It is important to provide pensioners with inflation protection from year to year because they do not have other ways of responding to falls in income that younger groups do. The Australian system is basically what we should have in terms of indexation, where the state pension rises in line with average earnings. You temporarily protect individuals against inflation being very high by indexing lined with inflation. What the Australians do is keep that inflation indexation for longer so that, in the long run, it still goes up in line with earnings growth. It is a little complicated to describe but that is essentially the idea. Protection against inflation in the short run, making sure that it keeps up with earnings growth in the long run.
Q11 John Milne: The fundamental question: is it possible for the Government to control state spending at the same time as addressing pensioner poverty? Is there a way to cut the Gordian knot?
Jonathan Cribb: Yes. We are at a point with the state pension where relatively targeted policies for particular groups, specifically those with high rents, can make a material difference compared to what it would be fair to call the blunt instrument of the state pension used as a sledgehammer against pensioner poverty. It is not that it has not been important, but it has been important at a significant cost. There are more targeted things you can do if you are concerned about pensioner poverty.
Chris Curry: There are always choices and that is the challenge. There are a couple of ways of doing what Jonathan has been suggesting: you could target additional support to particular groups, although, as we found in the past with means testing, it that can be difficult if it requires claiming. You do not always reach the people you want to reach because there tends to be a gap between the people who need it and the people who receive it.
The other way is to reduce the amount that goes to others through either a means or a wealth test, and both have their challenges. There is always a trade-off between complexity and simplicity and one of the big challenges in all this is people’s perception of fairness. When it comes to the state pension, people have a very specific idea that this is a benefit they have contributed to via national insurance throughout their working life. Anything that moves away from it being a universal benefit to a contributory benefit, and from the fact that people should get at least a minimum amount, is going to be difficult. If you set an idea for what the state pension should be providing, and have that objective, then maybe some choices become more clear-cut and transparent and may be easier to put into place.
Q12 Amanda Hack: Thank you for coming to speak to us today. Moving over to life expectancy, what we have seen is that life expectancy is increasing but at a slower rate than previously anticipated. There are also some regional changes and geographical variations based on healthy life expectancy. What do you think the implications of those would be on pension policy going forward?
Chris Curry: It is a really interesting area. One of the challenges we have at the moment is around life expectancy, healthy life expectancy and disability free life expectancy. We have just been through a period where it has been very difficult, given the covid situation, to be entirely clear of what is happening. What is a permanent change, what is a temporary change, and what is happening in those spaces as we go through?
It certainly does have implications for policy. It probably has more implications for policies that can mitigate those impacts rather than necessarily directly for a state pension policy. As we have just been discussing, targeting some methods of support and challenges might be a way to help people in local regions with lower healthy life expectancy and lower disability free life expectancy.
The specific challenges around healthy life expectancy are that we are seeing it change: we are seeing it decrease overall but changing in different ways for different parts and ages of the population. We are actually seeing increases in healthy life expectancy for people over 60. The biggest changes in healthy life expectancy that are going down are in those groups who are of later working age. They are self-reported. We are picking up, as we are seeing in many other health statistics, a difference in the types of health issue that people are reporting. If you compare and contrast that with disability free life expectancy, which is looking at something that has an impact on daily tasks, then that has actually been improving over the same period. That is self-reported as well but there is a narrower definition of what you are looking at as part of that.
Looking at all these things is really complicated and difficult, especially when you contrast the base type of calculation with healthy life expectancy and disability free life expectancy, which does not take account of changes in the future through the cohort life expectancy that the main life expectancy projections have, so they always look as if they are very low compared to the overall life expectancy.
One of the challenges the state pension review will have to look at, and the independent review around it in particular, is what other mitigations might be important outside the blunt instrument change of state pension age to try to help these individuals.
Going back to what Jonathan said at the start as a challenge for the Pensions Commission is that, while all these are factors that influence the outcome you get from a single state pension age, the way to help address them might not be through the state pension. There is a lot of work that can be done around healthy living, around changes in economic situations in the region, and in the labour market. All these things can help narrow those gaps, which then make it less of an issue by the time you get to state pension age.
Amanda Hack: Jonathan, do you have anything to add?
Jonathan Cribb: I would agree with a lot of that. In particular, healthy life expectancy is an extremely useful metric when thinking about inequalities across the country. It can help identify areas or groups of particular challenge because it is not just self-reported, subjective about what you consider your health to be. Over time, different people’s views of their own health feed into that in a way that is not quite the same as thinking about what London looks like compared to Blackpool.
We would love to know how long given cohorts are going to live on average. We know roughly how many people are dying at different ages now, but the important thing is how it is going to change in the future. We do not know that. My view is that the Government have to take a best view, given where we are, of what they think is appropriate.
My personal opinion on where that leads us in terms of the state pension age going to 68 is that I do not think we should worry quite as much about exactly what year it is. It is very hard to say, “This is the exact right year to do it.” I would rather see a system where the state pension age going to 68 is a bit later but we maintain that it remains to be seen as fair so that sustainability can be addressed decades down the line with ultimately an increase in the state pension age to 69. What would be really bad for the sustainability of the system is if you have an increase in the state pension age that in a sense goes wrong because it is seen to be far too early and there is no additional support that goes on beside it. That would undermine the principle that we have now had for 20 years, that longer life expectancy should lead to a higher state pension age.
Q13 Amanda Hack: That moves us quickly on to the next part of the question. In 2021, the former Pensions Minister, Sir Steven Webb, argued that the change in life expectancy meant we should reconsider the timetable for the changeover from 67 to 68. Jonathan, you have covered that a little but is there anything else you wanted to add about whether that should have been done?
Jonathan Cribb: I do not have anything to add on that. Chris’s colleague is leading a new review, which is a good thing. There was clearly a lot of uncertainty coming out of the pandemic about what the future would look like. I also think that the previous report came before a general election. In general, the way to try to take the heat out of these things is not to have these reports come out quite close to a general election. They are better in the first half of a Parliament and it gives more time to think about what the right thing is.
Chris Curry: It highlights the uncertainty. We have seen from previous sets of projections that there is now a trend for them to be slightly more pessimistic, or maybe less optimistic is the best way to describe it, every time they come through, but they are not massively different. We have a history before then of significant underestimation of things actually having to go up as well.
I would not want to react to what seems to be a relatively small change in a projection field. As you say, it is quite difficult to change a state pension age and you would not want it to be continually flexing and moving based on the latest information unless it was something that was really significant.
Q14 Chair: Could I follow up on what Amanda has said? What links or conversations have you had with actuaries and epidemiologists? I understand what you are saying, Chris, about healthy life expectancy being self-reported, but it does mirror life expectancy that is not self-reported. Our flat lining life expectancy and decline in deprived areas was reported back in 2017. I remember taking this in the Chamber just before the pandemic. The pandemic exposed that we, with the US, have declining life expectancy in deprived areas. What conversations do you have to try to understand the drivers of that?
Chris Curry: It is really in the space of the epidemiologists and actuaries. We try to keep up to date with what is happening in all those spaces. What you are highlighting is one of the challenges we have been aware of for a while, which is that, while people focus on averages, there is a very wide distribution around an average. While you could say that the average life expectancy is increasing in certain areas or for particular groups, it is either not increasing as fast or is not increasing at all. It depends on the way that you measure it as to whether it can be declining. We are seeing it decline in some measures in some places but, for a different type of measure, it is expected to improve going forward.
The challenge is that there are so many different things that can affect the healthy life expectancy and local variations that it is really difficult to project them and look further forward over a long period of time. They can work in both directions. For example, a lot of improvements in life expectancy have been down to lifestyle changes such as the intake of alcohol and levels of smoking. Those things have had an impact on life expectancy. There are some pockets of society where that is still more prevalent than others, but it has an impact in dealing with that. There are other things coming in, for example, drugs. We are not really sure what impact the obesity drug coming in will have, if any, and whether it will be a positive or a negative because it is still very early.
What we can say is that for centuries we have had a habit of underestimating future increases in life expectancy, but that again is based on averages. Around the time of the last Pensions Commission there was an expectation that there would be a narrowing of the range and gap between those with the lowest education attainment and those with the highest. We have not seen that happen yet. Whether that is a question for pension policy or wider government policy is a difficult one to answer.
Chair: In defence of my public health colleagues, we would say that the biggest drivers are socioeconomic and there is a huge evidence base to underpin that. Please have those conversations with excellent people such as Professor Sir Michael Marmot.
Q15 Rushanara Ali: I was thinking of Professor Sir Michael Marmot as you were speaking. The themes that are coming through are around fairness and inequality. Life expectancy in my constituency in East London is much worse than West London. The famous analogy of the tube map is that each stop eastwards reduces life expectancy. You also mentioned disability-related ageing in your analysis. Can you remind me what the percent of ageing is not disability-free, and what you expect it to be going forward?
Chris Curry: I do not have those figures to hand, I am afraid.
Q16 Rushanara Ali: Is it on the rise?
Chris Curry: I would need to go back and check on that; apologies.
Jonathan Cribb: I am the same; I do not have those to hand.
Q17 Rushanara Ali: You have touched on mitigation already. Dr Suzy Morrissey is conducting the third State Pension age review. Could you say more about what options to mitigate the impact of state pension age rises she should consider?
Jonathan Cribb: Can I pick up on an earlier point first and then come to your key question? A key thing to remember is that poor people with low life expectancy in general are poorer in other dimensions as well. These are all correlated. It is very likely that a significant amount of the health inequalities that we see are at least partly because of the economic inequalities that people experience during their working age life.
When it comes down to the pension system, thinking about the sustainability lens, it would be a bad situation for poorer people if we were to have a higher state pension age and a higher state pension than a lower state pension and a lower state pension age because those poorer people are more likely to die earlier. It is better for them to have a slightly less generous level of state pension but to receive it for longer.
Q18 Rushanara Ali: That is what I was driving at. What does pension policy then look like in the context of the trajectory of moving towards higher age without building further structural inequalities in the system?
Jonathan Cribb: First, having a system where no Government are pushed to put up the state pension age purely due to issues of sustainability.
Q19 Rushanara Ali: That is what has been happening: we have moved towards increase, so the question is, how do we mitigate?
Jonathan Cribb: The reason the state pension age has gone up is not just through sustainability but because of an understanding about fairness in what you should provide to older people whose life expectancy on average is rising over time. I do not think sustainability is it. You see some countries in crisis put up the state pension age very quickly—for example, Greece. If you end up in a fiscal crisis and you put up the state pension age a lot then that is going to be very bad for poorer older people.
The mitigations we want to think about are basically twofold. There are sets of people who we should provide greater means tested support for in their mid-60s as the state pension age goes up. We have this very big cliff edge in the amount of state support that is provided for somebody just below state pension age and just above state pension age. There was always a difference, but that difference has expanded over time because the working age welfare system has at best stayed flat and at worst been eroded, particularly because not many of these people have dependent children and a lot of our working age welfare benefits system is focused appropriately on children. It means that people in their mid-60s are not getting extra support for children.
So you have this huge difference in state support depending on whether you are just below or just above state pension age. There is no reason why there has to be this giant jump. You could stage increases in generosity to the working age benefits system. Through your mid-60s, we could put out a proposal for the last year before state pension age having a middle ground between the pension credit system and the universal credit system. You could do something more generous, but something like that would—
Q20 Rushanara Ali: How far do we get in addressing the gap?
Jonathan Cribb: If you had a universal credit rate which was halfway between the current rate and the pension credit rate—so you had two steps—we had a proposal that it would cost about £600 million a year the year before the state pension age. That is not enormous but it is also not insignificant.
There is political decision about how much you want to spend and provide support to a particular group. It would be appropriate to do that as the pension age goes up because poorer people in their mid-60s are seeing a reduction in state support and trying to mitigate that is important.
I do not know if Chris has anything to add here, but you should not forget the jobs side of this as well. It is very easy to think about the amount of state support that is provided. There is more and harder work to be done in thinking about how to support people remaining in work and the appropriate work for their lives that can get increasingly complicated in terms of their own health, their partner’s health, what is going on with their children, and what is going on with their parents. Anything that enables people even to continue to work part-time throughout their mid-60s is going to be helpful, not just because of the income but also the other benefits that work provides.
Chris Curry: That is a brilliant question that highlights some trade-offs really well. We talked at the start about adequacy, sustainability, and fairness. You can see all three dimensions here when you talk about the level of the pension and the age at which it is paid. If you pay it earlier and lower in order to make it sustainable then you risk adequacy in later life with people having lower levels of state pension in older age. We know that is when pensioner poverty can kick in. If you have a higher pension age and a higher pension, it helps you with the adequacy but it leaves you with a gap in fairness. Trying to find something which balances all three is really difficult unless you do other things, which is what Jonathan has been talking about. Can you do something that is targeted to help those particular groups? I would echo that the welfare system, rather than the pension system, might be the way to do that.
The extension of means-tested benefits to lower ages as opposed to this big cliff edge, as Jonathan has said, is a real challenge. Labour market policies could encourage and enable people to stay in the labour market for longer even though we know that it is not possible for everybody in that situation, which is why you probably need a combination of things.
Q21 Rushanara Ali: Knowing what we know about the pressures on welfare and the political challenges around that, how far do you think the commission should be explicit in addressing the inequities that would be built into the system given these choices and trade-offs? The argument around fairness and distribution is built against the fact that you have different life expectancies depending on a whole range of issues we talked about earlier. How important is it to be really clear, as part of the commission, that welfare mitigation has to be thought of through a pension policy lens as well as welfare; otherwise it could fall between the cracks given the costs, political pressures, and challenges?
Chris Curry: The costs will be the costs whichever part of the system they are in, but it is really important that they are highlighted. As a researcher, what we like to do is make everybody aware of the trade-offs they are making in the decisions that are taken with what is happening. It is ultimately a question for politicians as to how it is implemented into where it works. The role of researchers and reviewers is to highlight what those choices and the implications of those choices are.
Jonathan Cribb: I am strongly of the opinion that just thinking about the Pension Commission entirely as pensions policy and not about policy levers to do with the benefits system—whether that be the working age or the pensioner benefits system, which are in a sense two completely different systems—would not be the right route. Thinking about these things as a whole and thinking of the different policy levers that it has at different costs available to it is really important, particularly if you want to target areas, people, or groups of particular concern.
Chair: Thank you. That concludes our questions to this panel so many thanks. We will now change for the second panel.
Witnesses: Patrick Thomson, Andrea Barry and Ben Franklin.
Q22 Chair: A very warm welcome to our second panel for this evidence session on the transition to state pension age inquiry. It is a pleasure to welcome Patrick Thomson from the Standard Life Centre for the Future of Retirement, Andrea Barry from the Centre for Ageing Better and Ben Franklin from the International Longevity Centre UK. A very warm welcome to you all.
I am going to kick off, and my questions will follow on from the previous panel in relation to the Pensions Commission. Would you comment on the commission’s overall remit and the challenges it may face, particularly in delivering the objective of a strong, fair and sustainable pensions framework?
Ben Franklin: It is good that the commission has a broad remit; the original Pensions Commission in the 2000s had an equally broad remit. It faces challenges in terms of balancing the trade-offs across its remit, and where this discussion may go today is about how we weight those different elements. For example, if we build a really sustainable system, that could also undermine and limit fairness, particularly for those groups that may not reach state pension age in good health and who therefore leave the labour market early.
It is also worth thinking about how different the world is now to what it was 20 or so years ago. Pensioner poverty has declined, though there are signs of an uptick, particularly for pensioners who are renters. The Government’s fiscal situation is much more precarious now than it was 20 years ago as well. The sustainability arguments are really strong in terms of why we need to act, and act relatively soon. In addition, we have high levels of long-term sickness among the over 50s, and that has elevated—particularly since the pandemic—with 3.5 million people aged 50 to 64 inactive and out of the labour market.
These challenges are substantial, so before we take action, we need to think carefully about how we balance the different parts of the remit. My argument is that the most serious and urgent issues are around the long-term sustainability of the pension system. There are a couple of key points; debt to GDP is still rising and it is going to continue to rise to around 100% of GDP towards the end of this Parliament. Our debt interest payments are increasing, so understanding how we can get to grips with pension spending over the medium to long term is really important. Having said that, it has to coincide with action around supporting longer working lives to ensure we do not just swap one benefit for another.
Chair: Thank you. Andrea, is there anything that you want to add to that?
Andrea Barry: It is really important for us to consider the distinct inequalities that exist within the 60s age group. This group have been impacted by many policy changes at different ages, and unfortunately, the information around those changes has not always got through. We have carried out a lot of qualitative interviews with people in their 60s; some did not even know that they could have asked for what was called a midlife MOT with their employer to discuss their savings and retirement options. Some are still unsure how much they need to save and how much they will need in retirement. That information, like the issue of inequality, will be really important for the commission to consider.
I would echo Ben’s comments about the inclusion of work. Work is really important when thinking of pensions and retirement. A lot of people now are saving with their employer, but this age group were a bit late for the enrolment period. They were in their mid-40s and 50s, so when you are looking at their long-term savings, many of them missed that boat. We want to make sure they do not miss the boat when it comes to another inquiry into the state pension.
Chair: Those are good points. Let us turn to you, Patrick.
Patrick Thomson: Thank you for having me. We very much welcome the Pensions Commission. We think it is a great opportunity; we are living in a different world from the first Pensions Commission 20 years ago. I also like the time remit of this commission, which is looking forward to 2050. We are the Centre for the Future of Retirement, so we are really interested in what retirement is going to look like over the coming decades. We know it is going to look quite different, so even though the original Pensions Commission had fantastic policy successes—the introduction of automatic enrolment was hugely significant in bringing in millions more savers at a time when we were seeing declines—the challenge for this commission now is to make sure that people are not only saving but saving enough.
We think it is very good that they are focusing on adequacy—mostly on the private saving side—but they also are conducting an independent review of the state pension age, because those two factors definitely interact. We know that in this age group, around 40% to 50% of people are under-saving for their future retirement. As Andrea has said, there is a generational gap; this age group came into work before automatic enrolment was introduced and did not benefit from the more generous defined benefit schemes, or final salary schemes. For those we think of roughly as Gen X—people in their mid-40s up to 60—and even those directly above them, there is definitely a savings gap.
We have also done a fair bit of work on pre-retirement poverty in the age group from early 60s up to state pension age, which has seen some of the largest rises in relative poverty rates among all adults. A lot of that is due to the rise in the state pension age. So yes, we certainly welcome the commission’s work and feel that it is timely.
Q23 Chair: Just sticking with this, you probably heard the question put to the previous panel about adequacy and the state pension. It is not explicit within the terms of reference that the commission will look at state pension age but do you agree that it should, as the other panel did?
Patrick Thomson: Personally, yes, I absolutely agree. It is a huge part of what happens in terms of adequacy and sustainability; the combination of uprating and the state pension age is a crucial dimension to what that will look like over the next 10, 15, 20, or 30 years. It is a very difficult exam question to answer if you do not think of all those elements—if you do not think about what the state pension age is going to be, how might it rise in the future, and about the generosity of the state pension itself and how it is going to be uprated. We need to think of this in the round, not only in terms of the sustainability question but in terms of what individuals are receiving through both their pre-retirement income and their pensioner income, and how that interacts with a range of other things. The Pensions Commission would seem to be the obvious route to do that.
We have already heard about the impact of housing from the previous panel, but this also interacts with work and people’s income in working Life in short, you do need to look at it in the round.
Q24 Chair: Andrea, would you like to comment further on the extent to which pension policy has supported people who are now approaching pension age to save for retirement, which you started answering to my first question?
Andrea Barry: Pension policy can really help people when they are looking at saving for retirement. Again, I am going to home in on the question of information: we find that many people in social housing know a lot about their pensions, they know what they need to save because they are connected to the system. They might be interacting with the benefit system already, and there is information from the DWP on what they need and what retirement might look like for them.
The people who do not have this information are people who are privately renting and, to an extent, homeowners, because they are not directly connected to a system that provides good sound advice on saving. Some do not feel that they can get that information from their employer. There is a question of whether the employer is a financial advocate that can help them find out what saving and what a pension looks like for them. Employers can provide options for pensions and for savings, but they cannot necessarily provide the detail about pension policy that the Government can provide. A lot of people trust the information that Government provides.
So there is a divide based partly on housing, which means also by income, but in a different way than you would expect.
Q25 John Milne: As we discussed in the last panel, life expectancy is not improving as much as it was expected or projected to improve. In particular, there are some very sharp regional variations. What implications do you think that has for the state retirement age?
Ben Franklin: You are absolutely right: there are huge spatial inequalities in the UK; we are one of the most unequal countries in the OECD when it comes to income and health. Healthy life expectancy can vary by around 20 years, depending on which part of the country you live in, so it is an absolutely key question in this debate and policy arena.
There is a trade-off between potential sustainability gains and fairness. If you increase the state pension age, or you reduce the generosity of the pension, that is inevitably going to exacerbate the inequalities that currently exist within the system. Somehow, we have to balance against that.
Now there is a question about whether that is a role for pensions policy per se, or whether it is more about the welfare system, or having a more active labour market policy around skills and retraining, or an industrial strategy that supports the work and talent pipeline for older workers. Other countries are doing things around the flexibility of pensionable age. Denmark, for example, enables people who cannot continue working to claim their pension six years before pensionable age. There is not only an automatic mechanism to increase the state pension which it reviews every five years based on life expectancy at 60, but there are also early access mechanisms.
It is not just the responsibility of pensions policy to deal with inequalities, but there might be some adaptations that could be taken to deploy flexibility within the system.
Patrick Thomson: The big picture is that the state pension in its modern form has existed since the Second World War, and for the first 60 years the state pension age of 60 for women and 65 for men did not change. Thus, for most of its existence, the state pension age has remained the same, despite rising life expectancies for both men and women.
Since 2010, over a condensed period of 15 years, we have seen the equalisation of pension ages for men and women, and rises in the state pension age. In some respects, we have been catching up with those previous life expectancy gains. That is one fact to consider; if you have very rapid state pension age changes and rises, that can create challenging situations for certain groups in how they work, save and retire.
The numbers will tell you one thing, but we have also done a good amount of in-depth, often deliberative research, where we talk to people to understand what they are thinking. We also bring in experts and people with lived experience. We have held workshops across the country with hundreds of members of the general public, asking them what they know and understand about the state pension. Unsurprisingly, it really matters to most people. It is an important bedrock for their financial savings, and most people think of adding to it through private saving as well.
Once they have been through that deliberative process, once they know more about the state pension and its history, many people accept the need for a state pension age rise. They are not necessarily happy about it, but if it is done in a fair manner, within and between generations as well—sometimes easier said than done—they are willing to accept it.
Andrea Barry: I would add that labour market challenges across the country mean that state pension age rises are not going to hit all areas equally. That is very clear. In certain areas of the country the state pension will be extremely important because people might have been out of work for a long time and have not been living a healthy life. They had to leave work early or they did not have access to a good labour market, and that means they are unable to cushion themselves against a shock.
Health problems are a shock; if you have a good job, that shock can be cushioned: you can be accommodated at work, you can find a role that allows you to work flexibly, keep working longer and continue to boost your savings, so that when you get older, when you get towards state pension age, a further rise will not necessarily harm you. Unfortunately, there are areas of the country where that is less likely to happen. When the state pension age is rising, those distinct communities need to be spoken to in such a way that they will understand that this is not just the result of one policy change; it is 20, 30, 40 years of policies and decisions. Things have happened to them that are not necessarily their fault, but mean they possibly need to make some mitigations to make sure that they are not again on the short end of another policy shift.
Ben Franklin: That is a really important point. We have published a report called “The UK Better Lives Index” which taps into exactly that issue. In some parts of the country, half the population aged 50 to 64 are economically inactive, either out of work or not looking for work; if you raise state pension age and you do not increase working-age benefits, then you are going to increase pre-retirement poverty among that age group. It is really important that we take into account both working-age benefits and active labour market policy to support people to come back to work, particularly in those parts of the country that are going to be most affected.
Andrea Barry: The IFS issued a report on women last year, or maybe earlier this year, which said that a lot of women leave work early because they have certain information, they make a decision based on that information and then the information changes, the assumptions change and they have to make a new decision. Relationships break down; we came across that in our long 60s project when we talked to people about the challenges they faced with retiring in their 60s. Often it was because a relationship had broken down and they found themselves single. They no longer had any additional income from a partner; that disproportionately impacts women, who have 48% less retirement income than their male counterparts. They may have been out of work for five years; they made a decision to leave and now they need to find a job. Unfortunately, the labour market is not age-friendly, and if you have been out of the labour market for a long time—no matter your age or your gender—it is very hard to get back in.
While I am on my soapbox, employment support does not always help people of that age to find a job.
Q26 John Milne: The challenge for the state is that the cost of the state pension is rising. The IFS has suggested that one solution to that would be less generous indexation; to be fair to it, that is part of a package of other things. What is your reaction to that suggestion?
Ben Franklin: In terms of sustainability the challenge is strong, as I argued at the beginning; it is really important that we find ways to keep a lid on pension spending, not just because of the sustainability of government spending but also because it eats at other budgets within Government. The education budget has been frozen over the course of this Parliament; spending on pupils per head is actually going to fall in real terms. Defence is barely rising but health care spending and pensioner spending are continuing to rise, so it is an important challenge.
The question is, how do you keep a lid on it? What mechanism do you use? There are a number of different ways: you could anchor on maintaining and sustaining the proportion of GDP spent on pensions at around 5% to 6%, for example, to maintain current levels, but maybe with scope for some modest growth. You could also anchor on a third of life being in retirement, as we have at the moment. That is one option. We have explored what that actually means in terms of a pensionable age, and we estimate that it would make it around 70 by 2050, according to current life expectancy. Or you could have a set number of specific years; you could say that retirement should be 20 years, and then you use life expectancy gains to shift pensionable age on that basis. Obviously, there are questions about how you operate; the earlier panel and Jonathan mentioned the problems around the triple lock and how uncertainty and volatility add substantial and unknowable costs. By the end of this Parliament, those costs will be an additional £15.5 billion per annum to what was previously expected. That is clearly not a sustainable mechanism going forward, but we need to choose a mechanism to anchor on and justify what that is.
Hopefully, the Pensions Commission can come out with some ideas about what that might look like and how it can be made fair. Increasingly we will spend more than a third of life in retirement and we have an ageing population; that feels very unsustainable.
Patrick Thomson: Going back to the previous point, I would agree that if the Pensions Commission is looking at adequacy as a whole, it would be good to include both the private saving element and the state pension. Ultimately it is important to find out if people have enough to live on in retirement. It also comes down to what we think the state pension is for; as we found in our research with members of the public, it plays a lot of different roles. It is certainly important in preventing pensioner poverty, but people also think of it as something they have paid into all their life and that they are expecting to get something out of, so there is a circular dimension. People also think of it as a way of allowing them to have a retirement and to stop work, so it can play all those different roles. But we have to think about the policy and intent of it in terms of the fiscal picture as well; if we think of it in the round, that is helpful.
Andrea Barry: I am always cautious when talking about the triple lock because in one way it has been very beneficial for the people who needed it, who again, did not have that cushion; the triple lock was very successful for them. However, we recognise that it is a lot of money, and as the IFS has said there is a lot of volatility to deal with.
I am going to say again and again that if you are going to look at changes you cannot look at the triple lock in isolation, you cannot look at pensions in isolation, you have to look at it as an entire system of changes. You should be looking at why certain people, compared to other groups, are reliant on that system, reliant on benefits and the state pension payment. You should make sure that if you are going to continue to look at the adequacy of the state pension, some mitigations are provided for them.
Q27 Steve Darling: I would like to focus on people towards the end of their working lives. We have already started to unpick that, but I want to go a bit deeper and think about what support should be provided for older workers towards having a better retirement and what this would look like.
Andrea Barry: I am really happy to start. Everyone in their mind has an idea of what retirement age is. For some people it is not the age at which they stop working, so the end of their working life might be a longer period of time than we expect. Those currently in their 60s are working longer, they have to work longer; unfortunately, the least wealthy are not working longer, they are reliant on certain benefits to keep them going until they get to state pension age. But those who are working longer either choose to or they have no choice, and we want to make sure that they have the choice. Some are going towards self-employment because the labour market is not age-friendly; they are making opportunities for themselves. That is not something we have discussed yet. Some are in a precarious situation where they are in privately rented housing, they are unfortunately in poverty and so they are going into work. That is how I would set the tone when looking at that age group.
Ben Franklin: At ILC we have done an enormous amount of work on older workers. It is critical that we start to think about older workers as an absolutely crucial dimension of supporting supply-side growth. We are crying out for shifts and improvements in supply-side growth; we still have an inflationary environment; we have an ageing population. This is not just a UK problem, this is across advanced economies; we need to think about how we are going to boost labour market supply going forward, and we have substantial scope for improvement in this context.
For instance, if we look at Sweden’s employment rate for the 55 to 64 age cohort, it is about 10 percentage points more than the UK. If we equalised with Sweden, if we matched its rate, we would add around 2% to GDP, or £78 billion pounds. So this is an enormous opportunity in terms of the UK economy.
What I would say is that we are not really looking at this from a policy point of view. Alan Milburn is leading a NEET strategy, that is coming out soon, for young people who are not in employment education or training, and that is absolutely right. There have been proposals around construction and hospitality. We did an equivalent older workers strategy; the last one was way back in the mid-2010s. We need to revamp that now and think about how we can design job centres and promote an active labour market policy, as I was talking about earlier, both to prevent exit but also to bring people back into the workforce who may be 10 years or so away from reaching the relative safety of pensionable age and having a state pension.
Q28 Steve Darling: Thank you. Patrick, do you have any reflections?
Patrick Thomson: I would agree that this is probably the most crucial question. The way to address the rising state pension age in the long run is to think about how we can make work better for more people in their 60s. We have researched what we call the retirement expectation gap. Most people in the UK say that they would like to retire at about the age of 62, but they think they will be able to retire at the age of 67; so most people need to work for longer than they would like to, and for some groups, the gap is much wider. If you look at renters, for instance, they say their gap would be about eight years.
There is a lot that we can and should be doing. People working in their 60s are quite different; they face different opportunities and challenges. If you think back to the impact of covid, at that time many people, particularly older workers, left the labour market. Often, they were pushed out of work due to factors related to the pandemic, but some people looked at their work and thought, “Actually, there is a lot about this I don’t enjoy.” More people now have defined contribution pensions and can begin to access that source of pension wealth as a way of exiting the labour market early. It is probably not the best thing for their long-term retirement savings, but they have that option. That is probably a good challenge to employers because people have another way out, they have options; we need to be doing more to support workers of all ages.
Both Government and employers have made great strides on flexible and part-time working. We know that this is one of the big things helping people in this age group to be able to work longer. We also know that better support for carers can be a really important factor. We think paid statutory care leave—it could be five or 10 days—would make a big difference for this age group and help them to work for longer.
Q29 Steve Darling: Are there any international comparisons? Ben was mentioning Sweden, but are there any international examples you could point to as proof of where this works particularly well?
Patrick Thomson: Sweden and the Scandinavian countries are good examples of where flexible working often works well. But if you look at other advanced manufacturing countries, for instance Germany, they provide mitigations and flexible support in the workplace, in particular to enable those with health conditions to work for longer; there is certainly much we could learn from other countries.
It is important not to think about this as being just a cost or a drain on the economy. For the coming decades, this is absolutely going to be one of the driving forces for the economy. We did some work looking at the demographics and age profile in the industrial strategy sectors, which are high growth sectors within the UK. Interestingly, we found that their workers were older than average and those sectors had aged the most over the last decade. Sometimes it is about busting stereotypes about people’s typical image of someone working in a high growth, high tech sector. These are often people already in their 50s and 60s and more support for them would help us all.
Q30 Steve Darling: I have electronics and photonics industries in my own constituency, and a lot of their workers are people in their late 50s, 60s and even 70s because they have the knowledge.
Patrick, you have started to enter the area of my supplementary question, so I wonder if you could build on this conversation. In the light of the Mayfield report, clearly there are vanguard employers at play. What opportunities are there for them to reshape their culture for older employees so that they can stay on and continue productive lives within their companies? Do you have any reflections on that? We can go to Ben and Andrea afterward.
Patrick Thomson: The Mayfield review and the Keep Britain Working initiative is going to be crucial. What was so important with the Mayfield review is the fact that we are going to implement big changes by supporting people to remain in work for longer. Economically, for many millions of individuals, that will make a big difference.
I will declare an interest; I work for Standard Life, which is part of the Phoenix Group, and we are one of the vanguard employers ourselves, so we take this incredibly seriously. Doing this through businesses and employers is the route to change. It is about the culture within the organisation, but also about making sure that people have adaptations and flexibilities.
The more challenging part, which is also very important, is how you help people return to work. We know that over-50s in employment support programmes have among the worst outcomes. It is a more challenging picture, but it is certainly worth doing.
I just want to stress, this is about helping people to work for longer, whether they have health conditions or caring responsibilities, or whatever the challenges might be.
Ben Franklin: I aggressively agree with Patrick on a lot of this, and I suspect Andrea does too. I will try to be brief, but there are probably six things I want to touch on. First, which we have not spoken about much but is really important, is around skills and adult education. I do not see any big prioritisation in terms of increasing investment in adult education, but it is really key. In terms of looking at international examples, our efforts around adult education and technical education are pretty woeful.
It is really important that we align work and health interventions, and that we are supporting older workers—to be fair, all workers—into good jobs, not just any jobs. There is some interesting regional work on this in terms of aligning job centres, healthcare services, and advice providers, so that we have co-ordinated joined-up systems to support people rather than different parts of the system working in isolation. That is probably even more relevant for older workers.
Patrick has already mentioned stronger rights around flexibility. I actually think that the Government’s work around workers’ rights has improved this, but we still only have the right to ask for flexibility and we cannot go beyond that yet. Are there ways to strengthen that?
We should absolutely look at paid carers’ leave. There is carers’ leave, but it is unpaid, so people are financially penalised for caring. As a result, that actually pulls them out of the labour market altogether. That is really important.
The Mayfield review was great in terms of touching on the problems, and having these vanguard employers is great, but we are waiting a long time before serious action is taken at a policy level and that is frustrating. We can do more by learning and scaling what works across good employers.
We are currently working with Veolia, which is an environmental services organisation, to understand what their demographic pressures are. That is really interesting because these are frontline roles. We spoke about industrial strategy in some frontier sectors, but we are also talking about foundational industries here, and how we can design jobs that support people in physically demanding roles; a high proportion of those in environmental services are over the age of 50. Having a strategy to understand what the talent pipeline looks like in those businesses, knowing what works and then scaling that to other similar businesses, is really important. There are pockets of good behaviour and good employer activity; we have to bottle those and tell this story more broadly across the economy as a whole. That goes beyond just the vanguards, even though the vanguards are important.
Steve Darling: Definitely.
Andrea Barry: On the vanguard issue, I would just mention that we have what we call our Age-Friendly Employer Pledge. This comprises over 560 employers who are working with our organisation to look at best practice and employer engagement. They have case studies and they get access to really good evidence on how to ensure that older workers are supported within employment so that they can stay and retain their role. They have something called the midlife review and the midlife MOT, where they have those conversations. That was mentioned in the Mayfield review.
Actually, we found out during the review that eight of our employers are vanguards. However, those are employers who are interested and really excited to do something. Unfortunately, there are some employers that, due to misinformation or lack of information, think it is too expensive and will be too difficult. Some are SMEs; they are concerned about the bottom line, they are concerned about growth, and they feel they do not have the necessary tools and ability to ensure an age-friendly environment. Some vanguards have exceptional HR systems that mean they can track and really understand how people are supported in the workplace, and some SMEs do not have that. They are not fully aware of what best practice would actually mean, and so they have decided it is not possible for them.
Ensuring that supporting older workers is a possibility not only within the vanguards but also within SMEs would be extremely important when working with employers.
Chair: Thank you so much. Amanda Hack, we have 15 minutes left for this session.
Q31 Amanda Hack: Thank you, Chair. In the context of employment before retirement, do you think there is anything we should have learned or should be learning from the previous increases to state pension age? How might future increases to state pension age be managed better in terms of pre-retirement employment?
Patrick Thomson: I am happy to go first. We have seen state pension ages rising since 2010, so for over 15 years. We now have quite a lot of good data and good evidence on the results and we know with some certainty what is likely to happen next.
We know that when you raise the state pension age more people work for longer and delay retirement, but crucially not everyone does. It does not automatically lead to people being able, or wanting to, work for longer. It is those groups who are left behind and who face a wider gap to their state pension who are finding things most difficult. It is particularly challenging now as more of those groups are under-pensioned. Sometimes they have only a defined contribution pension, or no pension at all, and they have to grapple with quite difficult decisions in that interim period.
Obviously, this saves public spending quite considerably. This next rise to 67 is forecast to save public spending £10 billion a year, which is a significant amount of money, but that does not come cost free; it comes directly from people, from 66-year-olds no longer getting their state pension, so that is where the big impacts really hit. It leaves everyone slightly less financially secure as they enter retirement, but for some groups particularly, it can lead to actual hardship. The last time we saw the state pension age rise it doubled the rates of relative income poverty for the affected age group. So the policy question is: knowing with some certainty that there is a group in society whose rates of poverty will double in the next few years, is that the best policy outcome we can hope for?
It is also important because we know this is going to happen. It is not an unforeseen recession or spike in the cost of living, it is not another pandemic that we cannot plan for; we know who it is going to affect and when, even to the month. It is really important we go into this with our eyes open, and we make plans and mitigations where appropriate. A lot of those mitigations might be in the employment system, helping people to work and stay in good work for longer, but sometimes it might be specific targeted mitigations at people who are facing the most difficulties in weathering that gap.
Q32 Amanda Hack: Do you think those individuals who are going to be impacted are sufficiently aware, and have they been able to plan for this?
Patrick Thomson: That is a really crucial question. We have done some research on the general awareness of what people think the state pension age will be, and there are sometimes serious mismatches with reality. A lot of this comes down to the fact that since 2010, the state pension age has changed more years than it has not, so that leads to confusion for people. The more you can simplify the system and have well-communicated numbers, as rounded as possible, and target people who will be affected, so much the better.
For instance, fewer than one in five people of all ages can correctly identify the current state pension age of 66. It gets better for people in the 10 years beforehand: 80% of people aged 55 to state pension age can identify the state pension age within a year. But building up to the next rise, what is concerning and surprising for me is that when we asked people what the state pension age would be by 2030, many of them did not know the correct answer. Many younger people still thought it would be 60 or 65; significantly, about a third of people thought it would be 70 or more. That could be through a lack of trust in the system, a lack of education, awareness, whatever, but people do not necessarily know what is coming. People’s awareness improves as they approach state pension age, but for some people that might be too late to change their financial plans or their careers. These are things that you need to look at in the long run and help people plan, sometimes over many decades; the earlier you can communicate with them, the better.
Q33 Steve Darling: In the light of the review that Dr Suzy Morrissey is about to undertake, what opportunities do you see for her to allow some mitigations for those who are entering into this stage?
Ben Franklin: As I understand it, the review is looking at those fairness factors very strongly. Questions around the geographic and spatial inequalities that we mentioned earlier are likely to be a prominent feature.
For me, what is important is that we acknowledge and think about how we mitigate those challenges. There are factors that will need to be taken into consideration from a fairness point of view, which are absolutely crucial; we have mentioned many already today, but those factors should not delay the increase in state pension age. Due to life expectancy increases it is critical that we have a sustainable system going forward and that we can communicate that to the public, giving as much notice as possible of any changes that are to come, as well as the degree of uncertainty in which we hold some changes because life expectancy projections change, especially over 20 to 30 years.
Q34 Steve Darling: Was it you who mentioned the Danish system where there is an advance drawdown? Do you think that is something we should seriously consider?
Ben Franklin: It forms part of my evidence submission to the State Pension age review. We should be looking to other systems that seem to be solving this problem. The original Pensions Commission helped put us on a sustainable footing; we have auto enrolment as a result, so we can lean on a strong private savings pillar. We have the new state pension, which is better than the old, and we have managed to raise pensionable age successfully in the past without there being a huge political outcry.
None the less, we could potentially do better, including by looking to examples such as Denmark, which has built-in flexibility through an automatic review mechanism every five years based on life expectancy at 60. That is a really interesting model we should consider. There are also more radical options. Sweden, for example, has something called a notional defined contribution system, which effectively works like an annuity for individuals based on what they have contributed over their working life and can be accessed between the ages of 63 and 69. The time at which they access that obviously determines how much they will get during retirement, but nevertheless, there are built-in degrees of flexibility within it. The generosity depends on life expectancy and broader fiscal constraints as well.
So there are interesting and useful models that we could provide in terms of framing the options that the commission could consider.
Q35 Steve Darling: You touched on life expectancy; we are running out of time, but that was an area I just wanted to make sure we picked up on. Are there any examples internationally where, if you sadly die within a year or two of taking out the state pension, some type of life insurance payment is made to your family? Clearly that would assist in areas where there are higher levels of deprivation.
Ben Franklin: I am not over the specifics on what that might be. There might be some examples, but we would have to get back to you on what they look like. If you want us to, I would be happy to do that.
Q36 Steve Darling: Thank you. Patrick and Andrea, do you have any reflections?
Andrea Barry: A lot of these suggestions are tied to work. For instance, one of the options was that you get a proportion of what you put in over your working life. So once again, if we have these increases to state pension age, and that possibly continues over the next 30 years, we have to make sure that the protective effect of work is retained and improved upon so that the labour market can help people ensure they have options when they get to this age and that if the pension age keeps increasing, people are not cut out of a healthy retirement. At the Centre for Ageing Better, we just want to make sure people can age well. That ability to age well is the ability to be in work when you want to and leave work when you want to as well.
Patrick Thomson: I would just comment on the overall picture of what the independent review should be looking at, and then on which aspects the Government should respond.
There are really three tracks: there is a very short term track that runs from now until the state pension age begins to rise next year. We need to prevent increases in poverty for the age group most directly impacted by that. They might be people who are out of work in the years before state pension age, those with health conditions who are unable to work, or carers. The IFS mentioned ways of changing elements of the working age benefit system through universal credit, which could be worth exploring.
The medium track is about making sure everyone is aware of upcoming changes and can plan for their futures.
The longer track is about putting in place things from the Keep Britain Working review, changing working patterns throughout people’s 60s, helping them to work for longer and improving their working lives, whether through the industrial strategy or other Government support. Ultimately that will help individuals, but it will also boost the economy as well.
The final point to make is that when the state pension age rises, it is forecast to reduce public spending by £10 billion, but that is obviously money that does not come out of the blue. It is a very tough fiscal environment at the minute, but you could think of targeting some savings to help invest in all these things, and ultimately, in the long run, both Government and society would benefit.
Q37 Lee Barron: Given the fact that the state pension age will increase next year, what mitigation can be put in place now in order to accommodate that increase next April?
Patrick Thomson: Of the three strands, that is the most difficult one. There is a very short amount of time, and a lot of this is already bedded in. The DWP could look at tweaks or changes to the universal credit system in the years leading up to it; the IFS suggestion also has some merit. But it is a very challenging question. I suppose the main thing is making sure that the changes are known and are communicated, at least in that short window. But for many people the amount of income they have is already baked in. It is a really challenging issue.
Ben Franklin: I would add that it is important to make sure not only that those changes are communicated but that where there is support, whether that is debt advice or the Pension Wise-type advice about understanding the options with regard to people’s own wealth and savings and assets and how they could use them, those handoffs are clear and that those services are available and accessible.
Linked to that is the new support regime that is being built through the Financial Conduct Authority to provide tailored guidance based on model portfolios for different individuals to help them with those really critical decisions that they are going to have to make over the next year or two. That framework is not full financial advice; sitting in the lower tiers works really well, not just for middle and high net wealth but lower wealth and lower income groups as well.
Andrea Barry: I would say that we recognise that the state pension age is a blunt instrument. We can possibly incorporate the potential social impact of the state pension age changes into our policy decisions as well. A simple example is uprating pension credit or allowing it for a part of the pre-pension age. It is a fraction, less than 1%, of the savings you would be making and it would help people to withstand pre-pensioner poverty as well.
Patrick Thomson: One final point is the need to think about the wider picture. If unknown events occur over the next few years—for instance we enter an economic downturn or something similar—we need to make sure those things do not interact. We should be thinking about better redundancy support and a whole range of other things that we could be doing in the wider system to support people in this age group, particularly 65 and 66 year olds.
Chair: Thank you so much to you all. That concludes our evidence session for the transition to state pension age inquiry.