My Lords, I shall speak to Amendments 52, 55 and 58. I acknowledge that increasing the state pension age consistent with increases in life expectancy is part of delivering a sustainable state pension system. For the regular reviews of the state
pension age rules, however, we also need to ensure that a clear and wide range of relevant factors is considered and that there is clear and authoritative public presentation of the evidence to inform that debate, while recognising, of course, that the Government of the day will determine the policy that is brought to Parliament.
Intergenerational fairness requires that each generation should enjoy a roughly similar proportion of adult life in state-supported retirement, and we may well see newer and higher projections for life expectancy in the future which will bring huge challenges to how our society operates. For example, who knows where advances in modern medicine will take us in terms of life and health expectancy? State pension policy clearly has to be robust, in the face of not just increasing life expectancy but major uncertainty about how fast that increase could proceed. However, I am also concerned that increasing the state pension age should not be seen as the silver bullet for automatically delivering sustainability without considering some of the complexities and collateral consequences which need to be addressed at the same time.
This requires a range of factors to be considered in the periodic review of the state pension age. My noble friend Lady Hollis has clearly identified these factors, and I shall add arguments about why it is important that they are in the Bill. On average, life expectancy is increasing and yes, on average, ageing appears to be healthy, but averages do not tell the whole story. There are major inequalities, as has been articulated. Life expectancy varies significantly by socioeconomic class and while it has risen significantly in all social classes, there are widening absolute inequalities. Lower socioeconomic groups live for fewer years post-retirement, a smaller percentage of which appears to be free of sickness or disability, and they are far more likely to leave the workforce early for health reasons. In part, this reflects differences in key lifestyle predictors of future health.
The key implication is that there may be limits to the feasibility of across-the-board increases in the age of retirement from the workforce, particularly if the increases are more than proportionate to the increase in life expectancy of particular socioeconomic groups. Similarly, for those who are healthy, since the state pension accounts for a larger share of their total retirement income, this suggests that an increase in the state pension age would be most likely to induce lower income workers to work longer and less likely to induce higher income ones.
It is important to understand how trends in life expectancy and health by socioeconomic class will develop in the future. Certainly, figures indicate some significant differences in life expectancy and healthy life expectancy between regions. The recent figures, kindly provided, show that there is a widening gap between local authority areas with the lowest and highest life expectancies at age 65. Of course, one can speculate on the causes of these differences—major industrial shocks, unemployment rates, specific health problems and cultural and behavioural issues. However, if one looks below age 65, lower socioeconomic groups are also not participating equally in the significant reductions in death rates between the ages of 45 and 65.
An optimist could argue that the major occupational sources of ill health that played a large role in previous generations, such as coal mining or heavy industry, and whose impacts can still be seen in the regional incidence of unemployment, will decline in importance. Conversely, a pessimist would stress that the increasing divergence of some lifestyle factors, continuing differences in working conditions and new labour market features may offset some of these positive developments. The issue therefore is whether policy levers can be deployed to mitigate the disproportionate impact of a rising state pension age on lower socioeconomic groups.
Variable state pension ages may not be an appropriate response for addressing the significant differences in morbidity, life expectancy and early departure from the labour market. However, where differences exist a response is needed. Simply ignoring them is, in itself, a default public policy response with potentially negative consequences for many people. Measures need to target reducing health inequalities but the welfare system needs also to be sensitive, efficient and protective in supporting those for whom working longer is problematic because of their class and health. If these inequalities persist or widen should, for example, the age of eligibility for pension credit be lower than that for the state pension itself?
The UK state pension system, even with these reforms, will not be particularly generous in relative terms. Its focus is poverty prevention rather than an income replacement system. The value of the single tier will be only a little above the guaranteed credit. Yes, it will be the foundation for private saving to enable people to achieve a reasonable level of replacement income but it will be some years before auto-enrolment delivers the necessary savings levels. We are still only staging and phasing its introduction. Meanwhile, lower socioeconomic groups will still be facing a greater likelihood of ill health and earlier exit from the labour market as they get older.
Understanding the extent to which increases in life expectancy are accompanied by increases in healthy life expectancy, monitoring inequalities between socioeconomic classes and regions and identifying the implications for policies associated with the evolving policy for state pension ages will remain an important part of any review. The key responses should include a strong focus on health service and occupational health policies and on the measures to reduce the life expectancy gaps and to compress morbidity. The long-term aim must be to narrow health inequalities rather than treating them as permanent barriers. We should aspire, for example, for the men in Glasgow and Liverpool to have as good an average life expectancy as the men in Kensington and Chelsea, or even those in East Dunbartonshire. Policy needs to be designed to be both equitable and affordable in the face of whatever rise in life expectancy actually occurs. Higher pension ages are essential but are not in themselves a sufficient response.
Increasing labour market participation by older workers is, equally, an integral part of sustainability. Analysis of trends in average age of retiring from the labour market and in employment rates among older people by gender, region, occupation and socioeconomic
class is required to understand the extent to which increases in state pension age are accompanied by increases in employment. Unless increases in state pension age are accompanied by higher labour market participation by older workers, then the effective contribution of those pension ages to public expenditure pressures will be weakened, GDP will be lower and other benefit expenditure could well increase. However, major inequalities in life expectancy and health may make across-the-board increases in retirement ages unfeasible unless these differences disappear over time.
The policy of raising the state pension age needs to be accompanied by measures that facilitate higher labour market participation by older workers, because barriers certainly exist. Take, for example, the position of some women. Although women have a higher average life expectancy than men, the figures also reveal that the gap between them is narrowing. The gap between women in higher and lower socioeconomic classes is increasing and women’s participation in the labour market has reached a plateau, partly because of care requirements and the cost of care provision, particularly childcare. Older women are increasingly looking after their elderly parents or grandchildren. An older woman’s earlier age of retirement from the labour force may, for example, be the price paid so that her younger daughter or son can be economically active.
The cultural biases against older workers are often embedded in personnel practices and employers’ assumptions. Take training as an exemplar. The evidence suggests that employer-provided training is skewed towards younger workers, with an assumption that some workers are too old to train. Yet the experience of workers in their 50s plays an important role because beyond the age of 65, participation in the labour market is driven by participation up to the age of 65. Once older people exit the workforce, they are much less likely to work again. The challenges facing business in embracing older workers will be very real. I recall quite vividly 10 years ago the CBI, anxious about that challenge, simultaneously arguing for an increase in the state pension age to 70 but a default retirement age under discrimination law of nearer 65. I described it at the time as a five-year gap between loss of employment rights and receipt of pension. The debate has moved on but that indicates what tensions will be there as industry responds to increased longevity and increased state pension age.
The extent to which increases in state pension age are accompanied by increases in labour market participation will inform government of what initiatives they need to take, be it tackling discriminatory cultures, financial incentives for later retirement, incentives to employers to employ and train older workers, flexible employment practices, cultural attitudes and health policies and changes to welfare policy and welfare payments themselves. Whatever decisions are made in response to the periodic reviews of state pension age, and however much desirable continuity in policy can be achieved, delivering both a fair and sustainable pension policy and level of public expenditure will and should be subject to fully informed debate continuing over time, in the light of new information on a series of relevant factors becoming clearly available and systematically considered.
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