What should the state pension age be?

I’ve been thinking a lot lately about pensions. We spend a huge proportion of public money on them and that spending is only going to grow as life expectancy increases. The very unpopular solution would be to change the pension age in a way that would, I suspect, be quite drastic.

For an example of what I’m getting at, look at this Business Insider chart on US retirement ages and life expectancy:

I don’t want to look at it that way, though. I want to figure out, what would a fair state pension age (SPA) be?

What follows is purely speculative, napkin-scrawling, vague calculations from data which is not always recorded accurately. I don’t have the patience to actually sit down and think of all the caveats involved (it’s a Sunday, hello), but I thought it would be fun to look at anyway.

In the UK, a state pension was introduced in 1908 and paid out in 1909, for people who reached the age of 70 [1]. It’s estimated that 500,000 men received the first state pension. I can’t find any population statistics for 1909 but I found an estimate of 38 million in 1900 based on Census data [2]. Halve that (as women weren’t entitled to pensions) and you get 19 million eligible men.

That means that 2.6% of the eligible population received a pension that year. Let’s make it easier and round that up to 3% as our ‘base’ figure.

I’m also going to look at another ‘base’ figure, one from 1941. In 1940, the law was changed so men had to reach 65, and women 60, in order to receive a state pension. Note that pension rules had changed prior to that (adding in women, for instance), but not significantly.

Remarkably, nobody touched this age rule until some 55 years later. In 1995 plans were announced to equalise SPA between men and women, but on a ridiculously lax schedule — they’d do it gradually, between 2010 and 2020, which is what we see happening now. What follows since, in terms of pension rule changes, is more complicated — but I’ve digressed somewhat…

Back to the 1940 base figure — in mid-1941, the year after the change, there were 1.8 million men over 65 and 2.4 million women were over 65 in Great Britain. (Note no figures available for UK at this point, and I can’t find a reliable figure for women over 60, which would be more accurate). Out of 43.6 million people in GB in total, that’s 9.6% of the population [3]. Let’s call it 10%.

So, to keep pension payments at a ‘sensible’ level, you’d either have to ensure that just 3% of the population reach SPA (1909 figures), or 10% of the population (1941 figures).

What are we at now? The latest available population estimates are from 2015 and the figures from the ONS[3] say there were 65.1 million people in the UK, of which 5.2 million men were 65 or over and 8.1 million women were 60 or over. That’s 20.4% of the population, or around one in five people.

In the 1940s, one in ten people would get a pension, and earlier than that, one in ~33 people would get a pension. You see where this is going?

To take back state pensions to the way they were envisioned at the beginning in the Edwardian period (as something not many people would get, because they wouldn’t live long enough), you would have to raise the SPA for both men and women to 83. Even looking at 1940s figures, if you had an arbitrary ‘goal’ of ensuring that at least 10% of the population reach pensionable age it would still mean raising SPA to 72 for everyone.

I don’t think that would go down too well somehow…

[1] History of the state pension age
[2] List of countries by population in 1900
[3] Population by age, gender and ethnicity (ONS FOI response)

Further reading:
How Raising the Retirement Age Screws the Working Poor