Living in the shadow of a global pandemic has made us much more aware of our health and our mortality.
It may take many years for the long-term impacts of Covid-19 – from directly catching the virus to the indirect economic effect – to be fully understood.
But the fact is we have already reached a point in the UK where living to old age in good health is changing for many.
First the good news. On average, longevity is increasing within the UK and is projected to continue to rise. Yet the rate of improvement – how much longer each age cohort might expect to live compared to the age group older than them – is slowing. This is still positive overall as on average we live longer with each generation. Life expectancy measured across the entire population is not falling.
Unfortunately averages can hide a multitude of sins, as highlighted in recent PPI research with Age UK. It shows increases in life expectancy are not shared equally among the population. The gap in life expectancy between the most deprived and least deprived individuals has grown by 8 per cent from 2012 to 2017.
It is not just how long people will live that is important but also how healthy their later life will be. While it can be challenging to project healthy life expectancy in the same way as overall life expectancy, you can project assuming the same trends continue.
Again there is some good news. Healthy life expectancy has been steadily increasing on average for men since 2010. Yet it has been steadily decreasing for women over the same period. And as with life expectancy, these shifts in healthy life expectancy are also distributed unevenly among the population. For many, ill health starts well before reaching state pension age and reduces how long they can work and save for.
With unevenly distributed life expectancy and healthy life expectancy improvements, individuals may face retirement under very different circumstances. This could have implications for both state and private pension incomes.
Government policy is to increase state pension age to ensure individuals, on average, spend approximately a third of their adult life in receipt of their state pension. The government’s next review of state pension age is due by July 2023. The emerging data on inequalities suggests it will be important to consider the variation people experience in later life.
This does not necessarily mean individual experience should be factored into the state pension age directly. But at minimum the overlap with other policies such as labour market participation, welfare and means-tested support should be considered.
Individuals also have more freedom now to choose how to take private pensions. So those in poorer health may have greater flexibility in being able to meet needs, perhaps by taking pensions earlier or using enhanced annuity products. That assumes they have been able to save enough in private pensions in the first place.
Up to now my analysis has been about the pre-pandemic world and so what impact will it have? Data from the Centre for Evidence-Based Medicine suggests short-term mortality rates have increased due to the pandemic. This would influence short-term projections but has an unknown effect on future long-term ones.
The pandemic has also brought additional health challenges for those who recover from coronavirus and may suffer chronic health issues. This could hinder them returning to previous levels of work in what is certain to be a tougher jobs market. In turn, it may drastically alter their last opportunity to plan and save for a more comfortable retirement.
Although averages suggest the UK population may live longer, healthier and wealthier future lives, a close look at the numbers suggest these improvements are not universal. Covid-19 may deepen already increasing inequalities in life expectancy and healthy life expectancy. The next review of the state pension age must consider these trends, and what implications future state pension age rises will have for the less fortunate.
Chris Curry is director of the Pensions Policy Institute
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