| | The State Pension Age
(SPA) should be raised
faster and further than
currently planned to
fund higher state
pensions, reduce public
debt and reflect the
population trend of
longer, healthier lives
according to a new
PricewaterhouseCoopers
(PwC) report,
Working longer,
living better: A Fiscal
and Social imperative.
While the government
has already legislated
for the State Pension
Age (SPA) to rise from
65 in 2020 to 66 by
2026, 67 by 2036 and 68
by 2046, there is a
fundamental question as
to whether this goes far
enough, particularly
given the sharp rise in
UK public debt due to
the global financial
crisis since this
legislation was
introduced in 2007.
The report argues an
attractive option to
offset part of the
fiscal cost of an ageing
population is to raise
the SPA, which would
both reduce state
pension spending and
boost tax revenues as
some people choose to
work longer as a result.
The report suggests that
the government needs to
implement a phased
increase in the SPA to
70 by 2046, which would
have an estimated net
fiscal benefit relative
to current plans of
around 0.6% of GDP in
2046, or around £9
billion at 2010/11 GDP
values.
The report estimates
that this would be cover
around 60% of the
projected rise in state
pension spending between
2010 and 2046, which is
driven by the policy of
re-indexing the basic
state pension to
earnings rather than
prices before the end of
the next parliament. A
higher SPA would help to
fund this more generous
future state pension
without adding further
to the burden of public
debt and taxation on
younger generations of
workers.
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The net fiscal
benefit from raising SPA
to 70 (rather than 68)
by 2046 would be
equivalent, according to
illustrative
calculations in the
report, to avoiding a
tax rise at that time of
just under 2p on the
basic rate of income
tax, or just under 2
percentage points on the
standard rate of VAT.
The report also
identifies a wider
programme of change that
requires government,
employers and employees
to embrace new
approaches to the
delivery of health,
social care and adult
skills. This would
include scrapping the
increasingly
anachronistic Default
Retirement Age for
employees, although this
change would need to be
announced far enough in
advance to allow
employers to plan
effectively for this
change.
John Hawksworth, head
of macroeconomics at PwC
and co-author of the
report, commented: “The
sweet spot enjoyed by
the economy during the
past 30 years as the
post-war baby boomers
moved through the
workforce has the
potential to turn sour
as longer periods of
retirement leave a
lasting and expensive
burden on smaller future
generations of workers.
Either taxes will have
to rise or other
policies need to adjust
to deal with the higher
costs of state pensions,
health and long-term
care, as well as the
large debt hangover from
the global financial
crisis.
“A phased increase in
the state pension age is
part of the solution and
the government already
has plans to increase
this to 68 by 2046, but
we believe it needs to
go further and faster
with state pension age
rising to 67 by 2030 and
70 by 2046. The
estimated net fiscal | |
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| | benefit of this policy
of around £9 billion per
annum at today’s values
would cover the majority
of the costs of a more
generous
earnings-indexed basic
state pension. This
would restrict greatly
the spread of
means-testing for future
pensioners and avoid
adding to the already
large burdens of public
debt and taxation on the
children and
grandchildren of the
baby boomers.”
Jon Sibson, partner
and head of PwC’s
Government & Public
Sector practice added:
“While the Government
has responsibility for
changing the SPA
legislation they must
also encourage a change
in attitudes and
behaviours among
individuals and
employers. The Default
Retirement Age should be
abolished and public
services and policies
reshaped to promote
extended working life.
There will also need to
be policies focused on
employment support and
the right non-pension
benefits.”
The report makes a
number of additional
recommendations
concerning Government,
employers, employee
representative bodies
and the financial
services sector.
Chris Dobson,
director in PwC’s
Government & Public
Sector practice and
co-author of the report,
said: “A shift in
approach from employers
is needed to deal with
the coming impact of the
SPA changes.
Organisations across all
sectors need to overcome
barriers to flexible and
later working so that
the changes benefit both
employer and worker. The
focus should include
looking at the changing
nature of job roles and
career trends as the
average age of employees
increases.” | |
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