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Reviewing the State Pension age

By Ian Holloway, head of legislation and compliance at Cintra HR & Payroll Services

Section 27 of the Pensions Act 2014 applies to the whole of the United Kingdom (even though the rest of the act largely only applies in Great Britain). Section 27 requires the government to carry out two independent reviews when looking at future increases to the State Pension age (SPa). Further, it requires the Secretary of State to digest these and publish a report to lay before Parliament by 7 May 2017.

The 7 May legal deadline has been missed and nothing will happen now until after the general election. However, in the time up to this event on 8 June, it is worth digesting the two reviews that the new government will have to consider when it enters its new working Parliamentary session.

Review 1

John Cridland CBE, former director-general of the CBI, was appointed in March 2016 by the UK government to carry out an independent review of future SPa increases examining a wide range of evidence and analysis. Importantly, his review was not to cover SPa increases already in legislation up to 2028 (at which time the SPa will have increased to 67). His review for post-2028 individuals makes recommendations as follows:

• State Pension affordability is only maintained if the SPa rises to 68 between 2037 and 2039, though there should be flexibility for “disadvantaged groups”.
• Thereafter, in normal circumstances, the SPa should not increase by more than one year in any ten-year period.
• The government must improve communication about SPa changes.
• The triple lock for State Pension increases should not be maintained and should be withdrawn in the next Parliament.
• The State Pension should also mirror some of the flexibilities of private pensions such as the opportunity for lump sums and partial drawdowns for people that defer taking it at their Spa.

He also recommends that the 2017 review of auto-enrolment considers bringing the self-employed into the regime and improving pension coverage for women.

I guess these are all the inevitable consequences of people living longer and the State not being able to afford to pay for people in their longer retirement years. As such, there is not really much that is a surprise here.

For employers, he suggests “eldercare” policies and a new “Statutory Carers’ Leave” entitlement. Further, employers and government together should facilitate “Mid-life MOTs” to better equip individuals to assess their working, health and retirement futures. Also, there is the recommendation that older workers should be used as trainers/mentors to ensure their knowledge is passed to the younger generation.

I am not sure that all employers are going to engage fully with these new policy and statutory leave suggestions. Many employers will but there are a greater number who will not. Using older workers to pass on skills is something that companies should be doing at the moment anyway as part of their long-term business-skills continuity plans. It is interesting that the report talks of passing skills from “one generation to the next”, recognising that work-based training and learning is not always relevant if a generation is skipped; for example, a grandfather may have relevant life skills to pass to his grandchildren but will not have relevant work skills to pass on.

Review 2

The Government Actuary’s Department was asked to carry out a review with a much tighter remit to analyse whether individuals will spend a specified proportion of their adult life in receipt of State pension. It was asked to make recommendations looking at an adult in receipt of the State Pension for either 32% or 33.3% of their projected adult life in retirement. For the 32% scenario, their report suggested a SPa rise to 69 between 2040 and 2042. For the 33.3% scenario, a SPa rise to 69 was suggested between 2053 and 2055.

In summary

The snap general election has caused a statutory deadline of 7 May 2017 to be missed. Such a report would, undoubtedly, have made uncomfortable reading anyway as it seems inevitable that SPa increases are on the way.

I wonder how many party manifestos will focus or stay silent on the recommendations, particularly the controversial issue of doing away with the Triple Lock (at the time of writing, the Liberal Democrats have pledged to maintain it). I suppose that depends on how each party views the understandable backlash from people who do not want to work longer and their ‘silver voters’.

Posted on 8th May 2017 by Jerome Smail

 

 

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