Unions attack growing "postcode divide" in state pension entitlement as age rises

The Trades Union Congress (TUC), which represents the majority of UK trade unions, said that the Government's failure to consider inequalities in life expectancy as part of its policy would leave "millions" worse off in retirement. It said that a woman in her late 40s living in Dorset can expect to receive £67,000 more over the course of her life by 2028 than a woman of the same age living in Corby, and that inequality would also grow for different categories of workers.

"It cannot be right that people living in a wealthy area can receive tens of thousands of pounds more in state pension than someone living in a less well-off part of the country, particularly as richer people are likely to have earned more during the career and have a bigger private pension too," said Frances O'Grady, TUC General Secretary.

"The Government should abandon its plan to raise the state pension age in light of the new evidence on projected life expectancies. It should instead set up an independent commission to examine health inequalities and the impact on people's expected retirement incomes," she said.

However, pensions expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, said that the reforms, under which the SPA will rise to 67 for both genders by 2028 with future increases linked to longevity, were a "fair" way to tackle the increasing costs of supporting an aging population.

"When the UK Parliament first passed legislation for an old age pension in 1908, pension age was 70 and only one in four citizens was expected to reach that age. Now, an average male pensioner is expected to live for 18 years after starting to draw his pension from age 65. It is not surprising that the Government should wish to raise the SPA," he said.

"The question raised by the TUC is whether it is fair that pensioners who in practice live longer should end up receiving more pension in total than those who have shorter lives, given that the wealthy tend to live longer. But the whole point of a pension is to match the income payable to the actual period during which the individual needs the benefit - which seems a fair approach. Would it be fairer to force wealthier individuals to work longer and retire later?" he said.

Under current plans, the SPA for women in the UK is due to rise from 60 to 65 to match that of men from 2018, before it increases to 66 for both sexes in October 2020 and to 67 by 2028. The draft Pensions Bill, which is currently before Parliament, contains provisions which would allow the Government to carry out a review of the SPA every five years to ensure the system is sustainable, to be based on analysis of life expectancy projections and other relevant factors. The first review is expected to take place in the next Parliament.

The draft Pensions Bill also contains provisions for a new 'single tier' state pension, which is expected to replace the current system from April 2017. The proposed legislation would create a flat-rate pension set above the means test and based on 35 years of National Insurance contributions (NICs). Once the new state pension is in force means testing, pension credits and the second state pension will be abolished.

In its report (23-page / 117KB PDF), the TUC said that as life expectancies in some parts of the country were not keeping pace with the increases in SPA, "millions" of people would receive less despite having to work for a further two years. Those living in poor areas such as Corby, Manchester, Salford and Hull retiring in 2028 could receive up to £12,000 less state pension during their retirement than those retiring in 2016, depending on gender and geographic area, the TUC said.

As women in East Dorset would, on average, live nine years longer than women in East Dorset, the former would receive £67,000 more over their lifetimes, based on the new pension entitlement, the TUC said. For men, the largest discrepancy was between those living in East Dorset and those living in Manchester, where the former would receive £53,000 more over their lifetimes. These gaps would be £47,189 for women and £44,179 for men in 2016, before the changes, the TUC said.

The lifetime discrepancy for those in different occupations would also grow following the changes, the TUC said. Female managerial or professional workers could expect to live 3.8 years longer post-retirement than female manual workers, compared to 2.4 years today, with a state pension gap of £29,000. The equivalent gap for male manual and professional workers would be £23,000, or 3.1 years, up from 2.6 years today, it said.