Plans to link retirement age to life expectancy are being studied by the man in charge of welfare reform.
A simple and obvious thing which we deperately need to do.
How and when you retire on your savings or private pension arrangements is of course entirely up to you. But the State pension should really be seen as a form of social insurance. Insurance against living longer than your savings.
When the various systems came in (Bismark in Germany, Lloyd George here, FDR in the US) the age at which you got your state payments was around and about the average age of death. For good reason too.
As a rational 20 year old (just as an example) you could expect to live a further 45 years (again, just an example). Of course you don\’t really know what your lifetime earnings are going to be but you can at least make some assumptions and plan for that expected lifespan in your savings habits.
But what happens if you hit 68 and are still going? You\’ve acted rationally and responsibly but now you\’re skint. In comes the State pension. Insurance against outliving your savings.
However, average lifespan is now something like 78 for men. The retirement age is still 65. Far from the State pension now being social insurance it is now social assurance. It\’s gone from being a payment against a risk of outliving your savings, something unlikely, to being a method of paying for something which is likely, your living past that state retirement age.
The old age pension should therefore be returned to what it originally was: that social insurance. The pension age should be set at the average lifespan. Yes, we don\’t know what the average lifespan of the current cohort is, so we\’ll use the cohort before. But that would mean that the state pension age rises to 78. And as lifespans continue to lengthen, it will rise further.
Politically this is of course horribly difficult. But as a matter of economics it\’s an obviously good thing to do.