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Senior grandmother getting a birthday gift. (Photos.com)
Senior grandmother getting a birthday gift. (Photos.com)

Retirement

Will you need a pension at 80? British study does the math Add to ...

Britain would have to raise its state pension age to 80 if it wanted to limit payments to the same percentage of workers who lived long enough to receive the benefit when it was launched in 1908, says a new study.

According to an analysis by Longevitas, the life-expectancy think-tank, the odds of a 20-year-old male in 1908 living until age 70 - the original age for pension benefits - were only a little better than one in three.

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By 2009, the odds of a 20-year-old living to age 70 had risen to four out of five - yet the State Pension Age (SPA) has fallen to 65, with an increase to 67 due by 2020.

Stephen Richards, an actuary specializing in life expectancy and a director of Longevitas, said rising life expectancy raised questions over whether the state pension retains its original purpose as social insurance or whether it has become a right that citizens expect.

Pensions, as originally conceived, were a form of insurance policy against the risk that people might live longer than they were able to earn a living, and fewer than half of them did. But, a century later, large numbers of people receive the benefit for decades.

Back in 1909, the 34.8 per cent of men lucky enough to hit age 70 on average survived for a further eight years. Now, the 80 per cent of men who reach their 70th birthday will live, on average, for a further 14.2 years, nearly twice the term of their counterparts a century ago.

Mr. Richards suggested there should be more debate over whether people should necessarily expect to receive a state pension after a lifetime of national insurance contributions or whether, as with say home insurance, people should be willing to pay premiums but never make a claim.

The study comes amid a growing debate on the degree of support Britain should give to its growing army of elderly citizens. Pensions policy - and other benefits such as the winter fuel allowance and free bus passes - are coming under scrutiny and all political parties recognize the issue as one of the nation’s greatest fiscal challenges.

Mr. Richards said he conducted his calculations in the context of moves by the U.K. and other countries to raise the SPA in line with rising life expectancy as a means of controlling costs. He questioned whether raising SPA for everyone is fair given the evidence that poorer people do not live as long as their wealthier counterparts.

“We can see how the debate about the fairness of the retirement age has arisen,” Mr. Richards said. “The basic state pension was conceived and set up as a social insurance safety net, as only just over a third of adult males were expected to survive to the retirement age.”

Moreover, Mr. Richards noted that the original 1909 state pension was means tested - people had to fall below a certain income threshold to qualify - and there was also a character test. Those of dubious moral character could not qualify, he said.

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