What could the latest life expectancy projections mean for the State Pension Age?

Published on Incomes and Inequality

At the end of last week, the ONS published the latest future projections showing its best estimate of how long we can expect to live. We don’t automatically associate our living standards with factors like health or how many years of life we may have. But just like income, life expectancy is an important indicator of our standard of living. As our recent report found, these projections have big implications for people’s living standards in later life.

In perhaps a growing, and worrying, theme for prosperity-linked metrics, expected improvements in life expectancy have been revised down. As the chart below shows, a person born today can now expect to live for about a year and a half less than previously thought.  That may not seem significant over a lifespan totalling 90 years, but it represents a lost decade of improvement, with expectations now back to where they were under 2006-based projections. It is not just income that is little improved since the financial crisis.

Demographic projections are often wrong, but the greatest error has tended to lie with expectations of migration or birth patterns. Improving mortality had become something of a given. It’s stalled in recent years, and by enough for ONS to reduce their expectations of how fast life expectancy will improve in future. Exactly what is driving this slowdown is less clear.

Some have linked this stalled trend in mortality improvements to the impact of austerity on health services. Others have drawn attention to the persistent link between low life expectancy and local areas with high levels of deprivation. The ONS states that the reasons remain unclear but include among a range of possible factors greater resistance to antibiotics. What is clear is that government cannot simply rely on this being a blip. It must do far more to get to the root causes of this weakened outlook for longevity.

Lower life expectancy has an immediate feed through into at least one policy area – the State Pension Age (SPA). The rise in retirement age to 66 by 2020 and 67 by 2028, along with the path of future rises to age 68 and beyond have all been based on a principle of maintaining up to a third of adult of life in retirement retirement (although government are now erring towards 32 per cent with reductions in longevity expectations since 2010). Meeting that expectation is now looking less likely.

As the figure below shows, under previous (2014-based) projections the move to 67 and 68 followed that principle. However, on latest projections (2016-based) that is no longer the case. Indeed the new projections imply the SPA should reach 67 in 2036 and 68 by 2050 – very close to the path first set out in the 2007 Pension Act.

It’s not the case that we should start writing off the idea of a 100 year life. The UK lags behind other countries on life expectancy, leaving room for improvement. And as with any attempt to see into the future these latest projections are bound to be wrong.

However, they do highlight the need for flexibility in long term policy choices like setting the SPA. It is telling that the two increases that were brought forward outside of the consultative mechanism (the increase to 66 by 2020 and 67 by 2028) will fall short of the ‘one third of your adult life in retirement’ principle on the latest projections.

Of course we don’t want too much flexibility – with planned SPA rises changed every time new projections come out – but the need to provide ten years’ notice provides leeway to allow government to better understand the implications of these new projections.

Some will say this means we should slow down planned SPA rises. However, a better response would be to tackle the rise in mortality that’s driven this downgrade to get us back on the path, rather than accept slower SPA rises as a silver living for disappointing life expectancy.

Recent data should provide something of a wake-up call to government to delve deeper into the root causes of this further downward pressure on living standards. A renewed focus to identify and then address this trend can ensure we are all able to live long and prosper.