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Study proposes variable state pension age based on healthy life expectancy




Key findings from a new paper, Living longer and prospering? by the Oxford Institute of Ageing and Club Vita:

  • Current state pension system risks becoming financially ‘unsustainable’ unless state pension age increases and greater economic activity is encouraged amongst older workers
  • ‘Healthy’ not ‘total’ life expectancy should be used to set state pension age rises as this better reflects period of time in which population can be expected to be employed
  • Variable state pension age based on longevity and/or earnings needed to protect those with lower life expectancies

Key facts:

  • Healthy life style important in longevity
  • Occupation less important than life style
  • Where you live important, especially if you are poor

New research has found that the current state pension system will become ‘unsustainable’ unless older people work for longer and the state pension age is raised possibly even higher than 66, as proposed recently by the government. The study concludes that the government should also consider introducing a variable state pension age to acknowledge the wide variations in life expectancy across the UK. The findings form part of a new paper¹ published jointly by the Oxford Institute of Ageing, University of Oxford and longevity specialists, Club Vita.

Despite increases to the state pension age (SPA) announced by the government, analysis by the paper’s authors has shown that life expectancy increases are likely to continue to outpace the planned rises in SPA². This will lead to unsustainable, escalating costs for the state pension based on its current ‘pay as you go’ model whereby workers pay the pensions of those in retirement.

Drawing on Oxford research into the Club Vita dataset of the anonymised pension records of 1.7 million people, the authors explore a series of potential reform options to maintain the affordability of the state pension and ensure it does not disproportionately penalise those with lower life expectancies. These include:

Link state pension age to the ONS’ ‘healthy’ life expectancy (HLE) measure: Any change in state pension age should also recognise the impact of several years of poor health often experienced in later life. HLE indicates the length of time an individual remains healthy and hence is more closely aligned to their ability to work later into life. Setting the state pension age based on this measure would offer a more relevant and fairer measure than increases in total life expectancy. It would also better reflect the potential economic pool of labour available.

Introduce a variable state pension age dependent on individual’s life expectancy or lifetime earnings: There is a strong correlation between low wealth and shorter life expectancy in the UK. The impact of universal increases in the state pension age is therefore felt hardest by those who rely on the benefit the most. A variable state pension age based on an individual’s characteristics such as their lifetime earnings at age 55 would address this problem and ensure greater fairness.

Link state pension age to the working/retired ratio in the population: The state pension’s design requires a critical ratio of the population to be contributing in employment to support those in retirement. At present this ratio is deteriorating and could become unsustainable. Altering the state pension age on a periodic basis to maintain a viable ratio would ensure the continued financial viability of the system. The authors propose that this ratio might, for example, ensure that 70% of an adult’s life is spent in employment and 30% in retirement. 

Professor Sarah Harper, Director, Oxford Institute of Ageing and joint author with OIA’s Kenneth Howse, of the report comments:

“What has made pension sustainability so crucial is that the steady increase in life expectancy is occurring in the context of population ageing. There are going to be fewer younger workers supporting a much bigger elderly population.

“Furthermore the regional differences are significant.  Our data revealed a 13 year gap in life expectancy at 65  for men and a 16 year gap for women between those living in the top most affluent areas and those in the bottom least well off areas.

Interestingly, whether you are a manual worker or not only adds about a year to predicted life expectancy (male non-manual can expect on year longer) while a healthy life style can add 4 or 5 years to both men and women’s lives after 65”.

“Our analysis of this rich data has significantly increased our understanding of the emerging patterns in longevity.  We are now able to investigate factors such as health, wealth, occupation and lifestyle and we hope this helps to inform pension policy in the UK.”

Steven Baxter, Longevity Consultant, Club Vita and joint author with Oxford’s Kenneth Howse, adds:

“The government’s current reform proposals are welcome, but without additional measures we risk the system becoming unviable. Changes in life expectancy are rapidly eroding the capability of the system to be sustainable and act as the safety net that it was designed for.

“The combination of a decline in middle and old age mortality and falling fertility rates inevitably means fewer workers supporting higher numbers of pensioners. That is simply unsustainable, and without further action, terminal for our state pension.”

“We should also acknowledge that a one size fits all system is no longer suitable. The degree of variation in life expectancy across the UK means we cannot hope to have a fair system based on the present one size fits all retirement age. Variable state pension ages are a potential solution to this problem.

“We should also consider such measures as splitting the proposed flat-rate universal pension into two distinct elements: These would comprise a basic ‘universal’ support amount and a modest ‘reward’ level that provides a top-up in return for recognised economic activity. This would encourage greater participation in the labour force and lessen the problem of declining numbers of contributors to the state pension pot.”

The researchers analysed a Club Vita dataset of 1.7m pensioners and dependants spanning deaths back to the mid 1970s. The vast majority of the 530,000 death records are from the early 1990s onwards. This vast amount of data and records, which has been rigorously anonymised so that individuals cannot be identified, reveals 20 years of detailed insights into health, wealth, occupation and lifestyle in retirement.

Notes to Editors

¹ ‘Living longer and prospering? Designing an adequate, sustainable and equitable UK state pension system’ by Professor Sarah Harper, Dr Kenneth Howse and Steven Baxter is published on 12 January 2011 and launched at Club Vita’s annual conference at the Imagination Gallery in London.

² Forecast increases in life expectancy versus proposed increases in state pension age under current system:

For further information, please contact:

Dave Chambers
Hill & Knowlton
+44 (0)20 7413 3155
Maria Coyle
Public Affairs Directorate
University of Oxford
+44 (0)1865 280534


About the Oxford Institute of Ageing

The Oxford Institute of Ageing is committed to the rigorous academic research and the creation of research collaborations with government, business, NGOs and the public sector. For more information, go to

About Club Vita

Club Vita is the only company dedicated to providing longevity services to occupational pension schemes.
Longevity is many pension schemes’ biggest unmanaged risk. Failing to understand it results in schemes misstating liabilities by as much as £50m in a £1bn pension scheme. This puts pensions at risk and places undue strain on company finances.
Club Vita’s services are based on harnessing the collective longevity evidence from its members’ schemes. This body of evidence is unique in its size, history, relevance and detail.

Powered by research from the largest team of dedicated longevity experts in the UK, the Club’s approach improves on traditional, outdated models for assessing longevity.  This greater clarity enables schemes to take decisions with confidence, whether they are considering funding, liability driven investment strategies or risk transfer options such as buy-in or longevity hedging.
Club Vita was founded by Hymans Robertson in 2008, and has already worked with over 100 of the UK’s biggest pension schemes who between them have £150bn in liabilities. This work has enabled them to better understand and take control of their longevity risk.