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Review of state pension age could establish expectation it will rise in line with life expectancy

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The inclusion in the Queen's Speech of a Pensions Bill signals a much faster rise in the state pension age than the current timetable allows, according to Towers Watson.

The Government has said that, subject to the outcome of a review, the current timetable for increasing the state pension age will be revised but that it will not start to rise above 65 until at least 2016 for men and 2020 for women.
 
John Ball, head of defined benefit consulting at Towers Watson, said: "The new Government has only limited its freedom of manoeuvre for people in their 50s and 60s. While attention has focussed on how soon the state pension age will rise to 66, the bigger question is what happens afterwards. Rather than rising to 68 by 2046, we could see it going up further and faster. In Ireland, it is set to reach 68 by 2028."
 
Official projections of life expectancy have been revised dramatically since the current timetable was drawn up, Ball said: "The logic used to justify a state pension age of 68 by 2046 could now justify a state pension age of 70 by then - and that's before you factor in any need to make state pensions cheaper because of what has happened to the public finances."
 
Men in their 60s and women aged 55 or over would not be affected by the Government's plans but around four million people currently expecting to receive state pensions at 65 could get them up to a year later.
 
Ball pointed out that average life expectancy has increased by almost two years since it was decided that nothing should change until 2024, and for people now in their fifties, a higher state pension age will only limit the cost to taxpayers of higher life expectancy, not remove it - though there would be an extra gain to the public finances if people work and pay taxes for longer.

 The promised review of  the state pension age could also establish an expectation that it will continue rising for as long as life expectancy does. Ball said:. While nobody in their 30s can have much confidence about what their state pension age will actually be, it was always odd to assume that it would reach 68 and then suddenly stop. This generation of politicians could do their successors a favour by establishing a clear expectation that it will continue to rise if longevity continues to improve."