One of the proposals under consideration with the new pensions Green Paper in the UK, A State Pension for the 21st Century, is that state pension age should vary under some sort of formula with increases in longevity. This sounds so attractive – to take the politics out of longevity risk. But it creates tremendous uncertainty and potential distress for people trying to plan their lives. And longevity is only one of a large number of issues in deciding on the value of state pensions – others might at a particular time be far more important, like the wealth of the nation, changing national priorities, changing demography leading to changes in family structures, or the needs of older people. How and when the value of state pensions should change for the foreseeable future should be a decision taken from time to time in the political, social and economic context of a country and subject to democratic accountability at the time that it is taken. After all, many countries commit far more to their pension systems than the UK – the proportion of GDP committed to pensions is always a political decision.
It makes little sense for just one factor to be used to ‘automatically’ vary pensions when there are so many other factors that are relevant to the amount of pension to be paid, and it is very unsettling and stressful for people not to have any idea what their state pension age might be.