With permission, Mr Deputy Speaker, I will make a statement on pensions.
Last year, the Government commissioned the Government Actuary and John Cridland CBE to produce independent reports to inform the first review of the state pension age required under the Pensions Act 2014. I am grateful to Mr Cridland for his contribution in producing a thorough and comprehensive review. Over the course of his review, evidence was put forward by a wide range of people and organisations. I am grateful to everyone who took the time to engage. Today I am publishing the Government’s report on this review.
The Government are determined to deliver dignity and security in retirement, fairness across the generations, and the certainty that people need to plan for old age. In the report, I set out how we will achieve these things. As part of this publication, we have set out a coherent strategy targeted at strengthening and sustaining the UK’s pensions system for many decades to come. This is about the Government taking responsible action in response to growing demographic and fiscal pressures. That is why I am today announcing the Government’s intention to accept the key recommendation of the Cridland review and increase the state pension age from 67 to 68 over two years from 2037. This brings forward the increase by seven years from its legislated date of 2044 to 2046, in line with the recommendation made by John Cridland, and following careful consideration of the evidence on life expectancy, fairness and public finances.
When the modern state pension was introduced in 1948, a 65-year-old could expect to live for a further 13½ years. By 2007, when further legislation was introduced to increase state pension age, this had risen to around 21 years, and it is expected to be nearly 25 years in 2037. As the Cridland review makes clear, the increases in life expectancy are to be celebrated. I also want to make it clear that, even under the timetable for the rise I am announcing today, future pensioners can still expect to spend on average more than 22 years in receipt of the state pension. But increasing longevity also presents challenges for the Government. There is a balance to be struck between the funding of the state pension in years to come while also ensuring fairness for future generations of taxpayers.
The approach I am setting out today is the responsible and fair course of action. Failing to act now in the light of compelling evidence of demographic pressures would be irresponsible, and place an extremely unfair burden on younger generations. Although an ageing population means that state pension spending will rise under any of the possible timetables we have considered, the action we are taking reduces this rise by 0.4% of GDP in 2039-40. That is equivalent to a saving of around £400 per household, based on the number of households today.
Our proposed timetable will save £74 billion to 2045-46 when compared with current plans, and more than £250 billion to 2045-46 when compared with capping the rise in state pension age at 66 in 2020, as the Labour party has advocated. It is the duty of a responsible Government to keep the state pension sustainable and maintain fairness between generations. That is why the Government are aiming for the proportion of adult life spent in receipt of state pension to be “up to 32%”. This is a fair deal for current and future pensioners.
We will carry out a further review before legislating to bring forward the rise in state pension age to 68, to enable consideration of the latest life expectancy projections and to allow us to evaluate the effects of rises in state pension age already under way. This Government have a proven track record on helping people plan for their retirement. Alongside our automatic enrolment scheme, which has already brought the benefits of private pensions to nearly 10 million people since its inception, we have also set out plans to enhance the availability of impartial consumer advice through schemes such as the single financial guidance body and the pensions dashboard. Today, people have a much better idea of what their pension will be, bringing more certainty and clarity. That is something the Government will build on; making it easier for people to seek advice and make effective financial decisions.
I want Britain to be the best country in the world in which to grow old, where everyone enjoys the dignity and security they deserve in retirement. At the same time, we need to ensure that the costs of an ageing population are shared out fairly, without placing an unfair tax burden on future generations. To deliver that, we need to make responsible choices on the state pension age, and that is what the Government are doing today.