Jeremy Hunt’s shelved state pension plan will cost taxpayers £250 a year


Jeremy Hunt’s decision to shelve changes to the state pension age will cost taxpayers the equivalent of £250 each per year, new analysis shows.

The Chancellor’s plan to abandon an earlier increase in the retirement age will cost the public purse more than £60bn, the Institute for Fiscal Studies (IFS) has warned.

The state pension age is scheduled to rise to 68 by 2046 but Mr Hunt had been hoping to bring forward the increase to the end of the 2030s, as recommended by an independent review in 2017.

The Telegraph revealed this week that the Chancellor has now abandoned this plan after a surprise decline in life expectancy caused by the pandemic.

Jonathan Cribb, associate director at the IFS, said the reversal in longevity trends provided a reason to push off the increase but it would come with significant costs.

Mr Cribb said: “Higher mortality rates in recent years mean that any given generation is expected to live less long now than was expected at the time of the last pension age review in 2016. This provides a justification for delaying the rise in the state pension age.

“But to do so would cost money. There are significant long-term fiscal challenges coming from the ageing population and delaying the rise in the state pension age will cost the Exchequer around £8-9 billion for each year of delay.

Telegraph analysis suggests Mr Hunt's decision to shelve the changes will cost taxpayers the equivalent of £250 a year for the duration of the seven year delay.

The state pension age is currently 66 and will rise to 67 between 2026 and 2028.

Eight years ago, independent reviewer John Cridland advised the Government to raise the state retirement age to 68 between 2037 and 2039.

To help justify the rise he suggested the increase be linked to life expectancy, which was rising at the time.

However, life expectancy has fallen since then in part because of the pandemic.

A man born in 1971 is now expected to live to 83.9 and a woman to 86.7.

It marks a decrease from 85.6 and 88.1 respectively in 2016, figures which were used in Cridland’s review.

However, the IFS highlighted that life expectancy has still risen significantly when contrasting people born more recently with older generations.

A man born in 1980 would still receive a state pension for 17 years if the state pension age rose to 68. This is the same number of years as a man born in 1950 who retired at age 65.

Meanwhile, a woman born in 1980 would on average receive a pension for 20 years.

The pension age for men and women was only fully equalised in 2018.

Raising the state pension age with less than two years to go until the next general election is seen as a lose-lose situation for the Conservative Party.

However, kicking the decision into the long grass will place considerable strain on public finances.

Over the next 17 years, 1.4 million more people will retire than young people will enter the workforce, research from the Learning and Work Institute shows.

Projections published by fiscal watchdog the Office for Budget Responsibility alongside Jeremy Hunt’s first Budget last week showed that spending on pensioner spending will rise by £43.6bn to £160.4bn over six years to 2027-28.

The IFS warned that when the state pension age rose from 65 to 66, income poverty rates among 65-year olds more than doubled from 10pc to 25pc.

The think tank said: “The Government should consider what additional support should be provided to those on lower incomes, and those in poor health, in their mid-60s when the state pension age increases further."

In September last year, Baroness Neville-Rolfe submitted a new independent review of the state pension age.

The Government has a May deadline to publish and respond to her recommendations.

Jeremy Hunt is yet to make his final decision on whether he will delay the rise or not.