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Retirement Age

Volume 715: debated on Tuesday 1 December 2009

Question

Asked By

To ask Her Majesty’s Government whether they are giving further consideration to extending the state retirement age beyond the present age of 65 and 68 in 2044.

My Lords, we recently legislated to increase the state pension age to 68 by 2046 as part of a package of pension reforms. The timetable set out in the Pensions Act 2007 is based on the projected increases in average life expectancy available at that time. However, we have always made it clear that the changes to state pension age should be kept under review in the light of new evidence about life expectancy.

My Lords, I am grateful to my noble friend for saying that there could be changes, which I certainly would expect given that over many years the retirement age of 65 for men has not changed while life expectancy has increased very considerably. Should there not be a greater formal relationship between the pension age and life expectancy? I note that the pension age is set to increase to 68 for men and women in 2044, so far ahead are we making these assumptions. Is this not quite unacceptable, given the increase in life expectancy, which will increase very considerably over the next 30 years?

My Lords, it is undeniably the case that there has been a difference of more than a year in average life expectancy between 2004 and 2008. However, increasing the state pension age is an integral part of our package of state pension reforms that are designed to make it fairer, more generous and more widely available. We have responded proportionately to the demographic challenge, which will ensure that linking the basic state pension to average earnings is affordable in the longer term and ensures that the costs of rising longevity are shared fairly between those contributing to and those receiving the state pension. Unlike the party opposite, we have no intention of bringing forward the change from 65 to 66, which is due to take effect between 2024 and 2026.

My Lords, does the Minister agree with the noble Lord, Lord Turner, that, with hindsight, the proposals on reforming the pension age should have been more radical?

No, my Lords, I do not. As I said a moment ago, we have no intention of disturbing the 2024 change; it would be quite wrong to do that, particularly for people in their fifties who are getting close to retirement. If we were to bring forward the state pension age to 70 by 2030, as the noble Lord, Lord Turner, suggested, that would increase the change far in excess of projected life expectancy. We need to bear in mind the impact of this on lower-than-average life expectancy because it would mean fewer people reaching state pension age. Around 79 per cent of men are projected to reach 70 in 2030, compared to nearly 84 per cent who are expected to reach 66 in that year.

My Lords, while it must be right to keep the rapidly increasing life expectancy under review, does the Minister agree that surely the priority is not to make it harder for people who are looking forward to the very mean basic state pension but to get a grip on the totally unaffordable cost of public sector pensions going forward? At a time when an average police officer or fireman is retiring in his early fifties with a £1 million pension pot, and many civil servants will be retiring under the age of 60 for 30 years to come, is it not important to close this very dangerous public/private sector divide?

My Lords, I am sorry that we have heard yet another attack on public sector pensions. The noble Lord cites a particular example, but the average public sector pension is of the order of £4,000 or £5,000. In the test of whether public sector pensions are affordable, you have to look at the cash-flow effect over the long term. Long-term financial projections make it clear that they are affordable.

My Lords, does the Minister not agree that the speedy—and I emphasise, speedy—abolition of the default retirement age would help many older people who want to continue to work to do so, and enable our economy to benefit, as evidence has clearly demonstrated, from what their skills, loyalty and willingness to work can give to our country as we emerge from the current recession?

My Lords, the noble Baroness makes an important point. Changing the state pension age is one thing; if you do not facilitate the opportunity for people to work longer, the savings that might be generated by that change would be negated by increased claims for benefits. We have already announced that we will bring forward to 2010 the review of the default retirement age, rather than having it in 2011 as originally promulgated. Since 1997, the number of people in employment aged between 50 and state pension age has increased from 64.8 per cent to 71.7 per cent in 2009. There are now 1.4 million people working past state pension age.

My Lords, given that under this Government there has been a systematic degradation of occupational pension schemes, will not many people have to work beyond the age of 65, whether or not that is the official retirement age?

My Lords, there is no such thing as an official retirement age. We have been talking about the age at which people can access the state pension. I reject the assertion that there has been a degradation of pensions under this Government. Everyone knows that the consequence of the changes to defined benefit schemes in particular is generated by changes in longevity and assumed market returns that were wildly optimistic.

My Lords, I declare an interest, because my wife recently stood down as a member of the Care Standards Tribunal on reaching the age of 70. When the Government review the default retirement age in 2010, will they include compulsory retirement ages provided for in legislation, such as those that apply to tribunals, which would seem to be in conflict with other equality legislation?

My Lords, the noble Lord makes an interesting point. I cannot assure him that that will be covered, although I hope that it will. I shall take the matter up and write to him.