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Prime Minister 'very interested' in automatic state pension age increases, reports say

Prime Mister David Cameron is "very interested" in an automatic mechanism for raising the state pension age in line with increasing life expectancy, according to press reports.15 Feb 2012

Speaking at the Northern Futures Forum alongside Scandinavian leaders, Cameron signalled his approval for changes being introduced into the Norwegian system which will mean the state pension age will rise automatically as people live longer, according to a report in the Daily Telegraph. Built-in flexibility allows people to choose to begin claiming the state pension from the age of 67, but higher benefits are paid to those who work longer – with a cut-off of 75.

He also warned of a looming pensions "apartheid" between the expensive public sector pensions, with low retirement ages, and more "flexible" arrangements of private sector workers.

"We do have one problem with the public sector pensions system where you have got a lot of resistance to changing public sector pensions, some of which have very low retirement ages. We think we are making some progress, otherwise we could end up with quite an apartheid system where people in the private sector have this flexible ethic, they go on working, they change the way they work. But in the public sector, we have quite a cut-off and a very expensive public sector pensions system," he said, according to the report.

Linking the retirement age under public sector pension schemes to the state pension age is part of a package of measures to reform the system that the Government is currently seeking to agree with trade unions. The changes are due to take effect from 2015, but some unions are consulting their members on further strike action next month over what they see as "unacceptable" proposals.

The idea of a "more automatic" method of managing future changes in the state pension age, including the possibility of a regular independent review of longevity changes, was first introduced in the 2011 Budget and is currently being considered by the Department for Work and Pensions.

Pensions law expert Carolyn Saunders of Pinsent Masons, the law firm behind Out-Law.com, said that an automatic mechanism was not the best method for tackling the effect of increasing life expectancy on the state pension age.

"There is a general acceptance that state pension ages need to increase and the Government has been consulting on how to achieve this – but automatic increases are a blunt instrument, because they ignore factors such as regional variations in life expectancy and the availability of work for older workers. A better solution is an automatic review, which could then take account of other factors in determining whether and how to increase state pension ages," she said.

"Pensions 'apartheid' is already with us. For a while now, private sector employees have been paying to support public sector pensions at a level that they can only dream of; and the idea of stopping work altogether at a fixed retirement date remains a pipe dream for many in the private sector who simply cannot afford to do this," she said.

Under the Pensions Act, the retirement age for women in the UK will rise to match that of men from 2018 before it rises to 66 for both sexes in October 2020. Pensions Minister Steve Webb has suggested that further increases may need to take effect as early as 2026 - ten years earlier than proposed by the previous Government.

The age at which men could receive the state pension was set at 65 in 1926 when there were nine people of working age for every pensioner, according to Government figures. There are now only three people of working age for every pensioner and it is estimated that this will fall to nearer two by the end of the century.

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