The state pension age (SPA) should be raised faster and further than currently planned and the default retirement age (DRA) should be scrapped, according to a new report.
The Working longer, living better: A fiscal and social imperative report by professional services firm PricerwaterhouseCoopers, said the changes were needed to fund higher state pensions, reduce public debt and reflect the population trend of longer, healthier lives.
While the government has already legislated for the SPA to rise to 66 by 2026, 67 by 2036 and 68 by 2046, the report questions whether this goes far enough, particularly given the sharp rise in UK public debt.
A phased increase in the SPA to 70 by 2046 would have an estimated net fiscal benefit relative to current plans of around 0.6% of GDP in 2046, or around £9bn at 2010-11 GDP values, the report estimates. A higher SPA would help to fund a more generous future state pension without adding further to the burden of public debt and taxation on younger generations of workers.
The Conservatives have already said they will raise the pension age to 66 for men by 2016 if they come to power after the next election.
The report also identifies a wider programme of change that requires government, employers and employees to embrace new approaches to the delivery of health, social care and adult skills. This would include scrapping the default retirement age (DRA) for employees, although the report says this change would need to be announced far enough in advance to allow employers to plan effectively.
A decision on the future of the DRA is expected in the summer after a government review.
John Hawksworth, head of macroeconomics at PwC and co-author of the report, said: “Either taxes will have to rise or other policies need to adjust to deal with the higher costs of state pensions, health and long-term care, as well as the large debt hangover from the global financial crisis.
“A phased increase in the state pension age is part of the solution and the government already has plans to increase this to 68 by 2046, but we believe it needs to go further and faster.”