Many will recognise these words from the famous Beatles song “When I’m 64” (with acknowledgement to Lennon and McCartney).
If they rewrote the song today they might have to sing “Will you still pay me, if I'm not alive. When I’m 75.”
And that’s not good news for millions.
When the Beatles released the song in 1967, 52 years ago, 64 or thereabouts was the age when most people expected to be retired, enjoying a few years in the sun. Many relied on the State Pension.
Interestingly when the original Old Age Pension was introduced in 1908 it did not begin to pay out until 70. In the 1940s the State Pension Age (SPA) was made 65 for men and 60 for women but since mid-90s we’ve seen a gradual increase with most people now not collecting their pension until 67, rising to 69 by the 2040s. Women have been hardest hit and have to wait nearly 8 years longer now for their State Pension.
The SPA increases have gone hand in hand with rises in longevity. When the Beatles released their ditty in 1967 an average lifespan was about 72, today it’s 80.
So what’s the problem with raising the State Pension Age to 75, as the Centre for Social Justice thinktank has suggested? - a move that has set off a howl of protest. The answer is there are several problems and dangers.
First it’s worth looking at its proposals. To cope with an ageing population and encourage a longer working life, it proposes moving the State Pension age up to 70 by 2028 and then 75 a few years later. It seems a simple remedy.
From a macro-economic point of view there are some attractions in biting the bullet and making the State Pension simply an end of life subsidy, which is what it would become. Costs would be slashed.
It’s worth noting that the Centre for Social Justice was founded by Secretary of State for Work & Pensions Iain Duncan Smith, the architect of Universal Credit and a radical thinker on social policy.
I don’t believe his proposals are intended to “punish” pensioners by moving the State Pension finishing line further away but I do think the policy of delaying the state pension just to bridge a growing government spending gap is misplaced.
The one obvious problem is that moving the SPA to 75 means that millions would never receive it and they would likely be the people who would most rely on it, the poorest.
Retiring at 75 may work in affluent parts of the country where well-off people may live to 85, 90 or older and likely have private pensions too. It won’t work in poorer parts of the country where the State Pension is the difference between modest comfort and dire poverty.
In Glasgow City male life expectancy is less than 74. In huge swathes of the country life expectancy is between 75 and 78. How fair is it to ask everyone to pay in to the state pension for their entire working lives but receive nothing or just a few years benefit while others will get it for 15 to 20 years. Certainly not ‘social justice.’
We have also seen a stalling in rises in life expectancy. In a recent report the ONS said: “After decades of steady improvements in life expectancy in the UK, we’ve recently reported on the slowdown in increases in life expectancy since 2011.” The Institute and Faculty of Actuaries recently lowered its life expectancy forecasts by six months.
Would government lower the SPA if life expectancy falls significantly? I think we know the answer to that one.
The current policy of raising the State Pension Age slowly to 67 and then 68 seems about right and there must always be a balance between the cost of the State Pension and entitlement but any changes must go hand in hand with deeper pension reform which government after government has failed to achieve.
Those who pay into a private pension over many years to avoid being a burden on the state should be hugely encouraged in their endeavours not subject to endless cuts to tax relief and allowances as they are now.
Those who for one reason or another, often excellent reasons, cannot afford to pay in regularly to a pension should be given state help to pay into an individual state-suported pension fund which will provide them with a comfortable retirement. Where any pensioners choose to carry on working to supplement their income they should be given long term encouragement by the govenment.
Flexibility, balance and fairness is signally missing from the proposals to increase the SPA to age 75.
Kevin O’Donnell is editor of Financial Planning Today and a financial journalist with 30 years experience. This topical comment on the Financial Planning news appears most weeks.