Research and analysis

Methodology note in relation to the cost of reversing women’s State Pension age back to 60 and men’s State Pension age back to 65 over the period 2010/11 to 2025/16

Published 7 June 2019

The time period modelled is 2010/11 to 2025/26. 2010/11 is the first year of the State Pension age changes brought in by the 1995 Pensions Act, which raised women’s State Pension age to 65. 2025/26 is the final year in which people are affected by the State Pension age changes brought in by the 2011 Pensions Act, which brought forward the increase in women’s State Pension age to 65 and the increase in State Pension age to 66 for both men and women. Note that the costs of reducing the State Pension age to 60 for women and 65 for men would continue to accrue after 2025/26.

For pensioner benefits, the population affected by the State Pension age changes in each year (that is, those who would have been above State Pension age if it were reduced to 60 for women and 65 for men, but were below State Pension age under the legislated timetable), has been estimated based on population estimates and projections from the Office for National Statistics (ONS).

Methodology for State Pension costs

The average amount of State Pension that each person affected would receive in each year, is estimated based on published statistics on average amounts in payment up to 2017/18, and using different average amounts for those who reach State Pension age under the pre-2016 system and those who reach State Pension age under the new State Pension. The calculations assume that the basic State Pension and new State Pension are uprated going forwards by average earnings , and that Additional Pension is uprated by the Consumer Price Index (CPI) based on economic assumptions from the Office for Budget Responsibility (OBR). The affected population is multiplied by average amounts to derive total costs.

Methodology for other pensioner benefits costs

The estimate includes the costs of Pension Credit and Winter Fuel payments. The proportion of the affected population who would receive Pension Credit is estimated based on the proportion of the pensioner age population receiving Pension Credit in 2009/10. The average amount of Pension Credit that each person affected would receive in each year, is based on published statistics on average amounts in payment in 2009/10. The affected population is multiplied by average amounts to derive total costs. For Winter Fuel Payment, ONS data is used to estimate the proportion of those affected who are in a couple, and Winter Fuel Payment amounts for couples and single people are assumed to remain the same as in 2018/19. It is assumed in the estimates that men aged 60 and over would be entitled to Pension Credit and Winter Fuel payment if women’s State Pension age were reduced to 60.

Methodology for working age benefits costs

The calculations also include estimates of the savings on working age benefits that would not be paid. This includes Jobseekers Allowance, Employment Support Allowance, Income Support and Universal Credit. For the period up to and including 2017/18, the proportion of the caseload affected is calculated for each benefit (using published statistics on caseload by single year of age), and applied to the total expenditure for each benefit (based on published benefit expenditure figures) to estimate the total expenditure on the affected population.

For the period after 2017/18, the proportion of forecast expenditure on each affected single year of age cohort for each benefit is estimated based on data for the closest age cohort for which we have actual data available for 2017/18.

Assumptions and limitations

As with all estimates of projected costs, there is a degree of uncertainty. Where possible, we have taken steps to try to minimise any error.

The estimates are based on the following assumptions:

• everyone in the affected population claims a State Pension – in practice, this is likely to slightly over-estimate costs, as a small proportion of those affected will not be entitled to a State Pension
• an earlier State Pension age has no impact on the average amount of State Pension that people receive – in practice, this is likely to slightly over-estimate costs
• average State Pension amounts received do not change over time, except for the impact of annual uprating – in practice, this is likely to slightly under-estimate costs *the basic State Pension and new State Pension are uprated by average earnings, and Additional Pension is uprated by the Consumer Price Index (CPI) – to simplify the modelling, we assume that Pension Credit average amounts received do not change over time
• the proportion of people over State Pension age in receipt of Pension Credit reduces slightly over time, due to the introduction of the new State Pension

There are some things that are not taken account of in the modelling. These include:

• the costs or savings on any benefits other than those listed above – in particular, we have not modelled the costs of disability benefits, Housing Benefit or Carer’s Allowance
• the costs of new State Pension protected payments are not included within the model
• the estimates do not include lost revenue from National Insurance Contributions or income tax
• where a person would have reached State Pension age after April 2016 under the legislated State Pension age timetable, but before April 2016 with an earlier State Pension age, the model treats them as being on the pre-2016 State Pension system for the additional period for which they would receive the State Pension, but does not model the cost impacts of them being in receipt of the pre-2016 State Pension rather than the new State Pension over the remainder of their time in receipt of the State Pension
• costs have not been estimated for the period after 2025/26, however, costs would continue to accrue for as long as State Pension age remained below the legislated timetable
• only benefit expenditure is included within the estimates: there is no assessment of the administrative costs that would result if there were to be any changes to State Pension age