60 and 65 – irrational numbers or historically justifiable?

Have you ever wondered why retirement ages in most schemes were historically 60 for women and 65 for men? I think about retirement ages quite a lot and the somewhat strange phenomenon that the older I get, the further away retirement seems to move.  My parents were both retired by the age I am now and my mother has been enjoying her final salary pension longer than she actually worked - which no doubt is part of the reason I don’t have one and am still working (as well as because I love pensions law). 

Part of my pondering led me to thinking about a world in which Barber and 35 years of equality cases had never happened and equalisation primarily referred to an accounting methodology.  Of course this would also be a world in which pension lawyers had much less work, so I’m not suggesting it’s Nirvana!

Pensions are a concept that have been with us for nearly 1000 years.  The earliest example that the Pensions Archive gives of a reference to a pension in the UK is an agreement reached at the Exchequer Court in 1180 that two clerics should be dispossessed and consideration given to awarding them a pension (although there is apparently no record of whether they received anything so this could also be the oldest pensions scam).  The earliest pension schemes took somewhat longer to arrive with the Chatham Chest being set up in 1590 to pay benefits to wounded seamen who were no longer able to work.  

What was lacking in early pension arrangements was any concept of “retirement” on reaching a particular age.  People worked until they could no longer do so.  It was not until the late 19^th century that Bismarck, in an effort to court popular support in Germany, launched the first state old age pension. Contributions were mandatory and the retirement age was 70 – which conveniently appears to have been above the average life expectancy.  Clearly, it was not intended that many would be enjoying a long or indeed any retirement! 

The UK followed suit and introduced its own state pension in 1908.  We adopted the German retirement age of 70 and as only around 5% of the population was over age 65, it seemed a fairly safe bet that take up rates would be low.  The pension was small (below subsistence level) and subject to both means and character tests.  Anyone convicted of drunkenness was barred.  Unlike the German system it was non-contributory as the belief was that financial support was most needed by older women who would not have the financial means to participate in a contributory system.  Two thirds of the first state pensioners were women and they received a generous 25p a week (which according to the Bank of England would be about £1,348 pa today). 

There were concerns about the cost of this arrangement from the outset and that it deterred people from saving for their own retirement, so changes were made in 1925.  A scheme was introduced which provided various benefits including one which looked more like the current state pension – funded by employer and employee contributions and payable to both men and women at age 65. However, although this looks like equality, only single women could contribute and they received lower benefits than men.  There was also a married couple’s rate of pension but it was only payable if both spouses were over 65. 

So, what about occupational pensions? Although there had been some growth in private pension provision during the 19^th century, the introduction of the state pension created demand for employers to do more.  Private pension provision was also encouraged by the Finance Act 1921 which provided the first pension tax reliefs. 

Details about the structure of early 20^th century pension schemes and their retirement ages are hard to find (at least in the time I have available to devote to the task).   It would seem that initially there was little consistency, but that it was not uncommon for benefits to be provided on different terms for women – often entitling them to a smaller pension at an earlier age.  It was also usual for schemes only to be open to single women and for women to have to give up work on marriage.   

Unequal state retirement ages were introduced in 1940 when the state pension age for women was reduced to 60. There appears to have been two drivers for this.  The first was a recognition that something had to be done to address acute poverty levels amongst older women for whom unemployment levels were high.  The second was the position of married men who had to wait until their spouse was over state pension age before receiving their state pension.  As men were typically around 4 years older than their spouses this meant that many had to wait until they were almost 70.   

Occupational pension schemes appear to have looked to the state scheme to determine their retirement ages on the basis that workers would get both state and private pension at the same time which led to retirement ages of 60 and 65 becoming the norm. 

Things continued in largely the same vein for 50 years until 17 May 1990 when the European Court held in Barber v Guardian Royal Exchange (fairly unsurprisingly) that it was contrary to the equal pay provisions in the Treaty of Rome “to impose an age condition which differs according to sex… even if the difference between the pensionable age for men and that for women is based on the one provided for by the national statutory scheme.”  Cue a collective sigh of horror from UK occupational pension schemes and decades of attempting (and often failing) to equalise retirement ages. 

Although unequal state retirement ages were outside the Treaty of Rome provisions, the government announced in 1991 that it would equalise them and legislation was put in place in the Pensions Act 1995.  The timetable demonstrated absolutely no urgency and aimed for full equalisation by 2020 (although later legislation accelerated this).  The problems posed by accrued GMPs which reflected unequal state retirement ages were unhelpfully found by parliament to be just too difficult to tackle and so were left to occupational pension schemes.  As we all know, a solution of sorts was eventually found in the Lloyds case in 2018.  

So, were 60 and 65 rational or irrational choices for retirement ages? There was clearly a socio-economic rationale for them at the time they were put in place but that diminished over the years and was increasingly hard to justify by reference to the working patterns and life expectancies of the late 20^th century.   More could have been done sooner by both the government and occupational pension schemes but the associated costs and the risks of getting things wrong led to an industry wide paralysis (most notably in relation to GMPs).  

As with many things, to get to where we wanted (with fully equalised benefits and retirement ages), it would have been better if we had started somewhere else.   For the future, as another state pension age review has just got underway only two years after the conclusion of the last one, it looks like retirement ages might change again.  However, if anyone is interested in a radical approach and would like to give some thought to a retirement age of 55 (possibly limited to female pension lawyers), I would be very appreciative!