UK - The government is being urged by consultants to increase the level of the state pension age (SPA) “faster and further” than currently planned to the age of 70 by 2046, to help pay for a higher state pension and reduce public debt.
In a report entitled Working longer, living better: A fiscal and social imperative, PricewaterhouseCoopers (pwC) suggested while recent pension reforms have been put in place to increase the SPA to 68 by 2046 for both men and women, there are concerns that this is not far enough following the recent sharp rise in public debt issued to tackle the recession.
The report argued that increasing the SPA more quickly would reduce state pension spending and boost tax revenues as people continue to work longer. PwC estimated if the Spa was increased to 67 by 2030 - instead of 2036 - this would save 0.36% of GDP, equivalent to £5.2bn (€5.9bn) a year at 2010/11 rates.
It claimed the government would save 0.6% of GDP, or around £9bn at 2010/11 values, if it went a step further and increased the SPA to 70 by 2046 instead of 68.
It admitted this would only cover around 60% of the projected rise in state pension spending between 2010 and 2046, following the expected re-indexing of the state pension to earnings, but argued this would avoid the need for other fiscal solutions such as higher taxes.
This is because, PwC suggested, a one year rise in SPA in 2030 would equate to a 1p increase in the basic rate of income tax or a one percentage point rise in the standard rate of VAT. A two-year increase to 70 in 2046, meanwhile, would be the same as a 2p increase in income tax or a two percentage point increase in VAT.
Despoite this, the report from PwC said in addition to a higher SPA the government would have to encourage people to work longer and “drive behaviour change” among employers and employees, through policies such as abolition of the default retirement age and development of an adult skills strategy.
Employers also need to change their views on the value of older workers and to make changes to employment processes to accommodate them, through flexible working. But PwC warned the financial services industry will also have a “key role to play” through its provision of saving and decumulation products.
In particular, it suggested these savings products need to be flexible enough to allow people to plan for later life without a fixed retirement date in mind, perhaps through part-time or flexible work. The retirement decumulation process also needs to become more “sophisticated” allowing people to perhaps access some of their savings while still working and accumulating a pension.
John Hawksworth, head of macroeconomics at PwC and co-author of the report, said: “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.”
He added the proposed increase in SPA to 70 by 2046 would cover the majority of costs associated with the more generous earnings-linked state pension, which would “greatly reduce the spread of means-testing for future pensioners and avoid adding to the already large burden of public debt and taxation on the children and grandchildren of the baby-boomers”.
Chris Dobson, co-author and director in the government and public sector practice at PwC, added: “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 the changing nature of job roles and career trends as the average age of employees increase.”
If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email firstname.lastname@example.org