AS – Formula for ‘third of life’ state pension increases published

People should spend, on average, up to one third of their adult life drawing a state pension, the Government has confirmed.

The formula

Proportion of adult life spent in receipt of State Pension = (Life expectancy at SPa) / (Life expectancy at SPa + SPa – adult life starting age)

The Department for Work and Pensions has published a formula that says the proportion of adult life spent in receipt of state should be equal to life expectancy at state pension age divided by the sum of life expectancy at state pension age plus state pension age minus adult starting age.

The government will use the age of 20 as the appropriate starting age, as per OECD convention.

UK cohort life expectancy, published by the Office for National Statistics will be used for life expectancy.
Because average life expectancy differs between sexes, it will take a figure weighted for the different numbers of men and women in the population at the relevant SPa and their respective cohort life expectancies, is used in the “life expectancy at SPa” component of the calculation.

The government is currently legislating for a review of state pension age in every parliament, with individuals to be given at least 10 years’ notice.

The DWP says it will working with the Government Actuary’s Department, to develop detailed proposals for the methodology which will inform the State Pension age review which will be conducted early in the next Parliament. The DWP paper says: “Our working assumption is that this methodology would provide for SPa to complete any increase in the year in which the proportion of adult life spent in receipt of State Pension at the existing SPa would have reached 33.3% (to the nearest decimal place). Because life expectancy is projected to steadily increase year after year, with any given SPa, successive cohorts will spend more and more time in receipt of a State Pension.”