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How do differences in life expectancy translate to pension inequalities?

Jonathan Cribb
& Heidi Karjalainen

19 Dec 2023

Recent adjustments to the UK's state pension system have narrowed annual income disparities, particularly between genders, through the introduction of a flat-rate pension. However, an analysis using ELSA data reveals persistent inequalities in lifetime state pension income. Jonathan Cribb and Heidi Karjalainen from the Institute for Fiscal Studies highlight the impact of policy changes, such as increasing the state pension age or altering indexation methods, on various demographic and wealth groups.

The UK's state pension system, after recent changes, now awards a uniform flat-rate pension to most of those who have been working, receiving benefits, or caring for small children in the UK for at least 35 years. The new State Pension, introduced in 2016 and currently worth £10,600 per year for those who have reached the state pension age of 66, has narrowed state pension income gaps across various groups, such as between men and women.

However, while it is true that in any given year the gaps in state pension incomes between different groups are now smaller, there will still be differences in how much state pension income people can expect to receive over their lifetime. The state pension is received from the state pension age (which is the same for everyone) until death, so disparities in life expectancy will drive inequalities in lifetime benefits – people who live longer will receive more from the state pension than will people who die shortly after reaching state pension age (or indeed those who do not make it to the state pension age). These inequalities in life expectancy are found in many dimensions including by sex, education, income, wealth, and region.

ELSA data insights: Unraveling lifetime disparities

A critical question then arises: how large are these disparities in lifetime state pension income between different groups? Moreover, how do changes to policy impact different groups? The English Longitudinal Study of Ageing (ELSA) data provides us with a unique opportunity to study these questions. Using data on wealth and demographics in ELSA, combined with the mortality records which we re-scale to match life expectancy tables from the Office for National Statistics (ONS), we can create measures of life expectancy by wealth group, and calculate the expected total lifetime state pension income accordingly.

Figure 1 below shows the results of this analysis, drawing from new work conducted using ELSA and published as part of the IFS Pensions Review (Cribb et al 2023) . This figure shows differences in lifetime state pension income by wealth and sex for one generation (those born in 1955), assuming that they all receive a full new State Pension from state pension age until death.

Figure 1. Net present value of triple-locked state pension received from age 66 at age 50, weighted according to survival probabilities from age 50 for those born in 1955, by sex and wealth quintile (Source: Figure 6.2 in Cribb et al (2023)).

First, comparing men and women, the figure shows that the expected total income from the state pension is higher for women than for men, driven by women having a higher average life expectancy. Second, in addition to this gender difference, the figure also shows that expected total income from the state pension is higher for richer people than for poorer ones. For example, men in the bottom wealth fifth have expected total income from the state pension of just under £100,000, compared with nearly £170,000 for men in the wealthiest fifth.

Policy shifts and fiscal considerations

But what is the impact of policy changes on the lifetime state pension income different groups can expect to receive? Two distinct policy levers for controlling the future public finance costs of the state pension are increasing the state pension age, or changing the way in which we increase the level of the state pension every year (also known as indexation). Currently the state pension is indexed in line with triple lock – it increases every April by the largest of 2.5%, inflation or average earnings growth. An alternative indexation method could be average earnings indexation, which would mean the state pension would go up by average earnings growth every year.

Figure 2 illustrates the effects of these two policy changes on the lifetime state pension income across different groups. Both an increase in SPA from 66 to 67 and a shift from triple lock to earnings indexation result in similar average impacts, reducing expected lifetime income from the state pension by approximately 6% for men. However, wealthier and poorer individuals experience these changes differently. Increasing the state pension age disproportionately affects lower wealth groups, as a one year reduction in state pension income forms a larger percentage of their total lifetime income from the state pension. Conversely, changes in indexation methods have a more pronounced effect on wealthier individuals, who benefit longer from the higher state pension afforded by the triple lock.

Figure 2. Percentage change in the net present value of income from the state pension resulting from increasing the SPA from 66 to 67, and from moving from triple lock to earnings indexation, by sex and wealth quintile (Source: Figure 6.3 in Cribb et al (2023))



In conclusion, while recent policy changes in the UK's state pension system have made significant progress in reducing state pension income gaps in any given year, there are still important life expectancy-driven inequalities across different groups which would be affected in very different ways by alternative options for managing the fiscal cost of the state pension system.


Cribb, J., Emmerson, C., Karjalainen, H., Johnson, P. (2023) ‘The future of the state pension’, IFS Report 291

Image courtesy of the Centre for Ageing Better Image Library

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