If a ‘hard’ Brexit leads to a drop in migration, this could put pressure on the State Pension Age (SPA) to increase by 18 months for workers under the age of 40, finds our latest esearch. This is in addition to the independent review of SPA currently underway being led by John Cridland.

If migration falls by 150,000, as per forecasts made by researchers at Kings College London*, to keep dependency ratios at their current levels (i.e. the number of economically active people of working age supporting the number of dependent people not of working age) SPA would need to rise by 18 months by 2050.  However, the speed with which this happens depends on how immediate the expected net drop in working age migrants plays out. 

Jon Hatchett, Partner and Head of Corporate Consulting commented on the findings:

“Unfortunately we’re already in a position where state pension age is playing catch up with improvements in life expectancy.  John Cridland, with his independent review of state pension age currently underway, already has a tough job in making recommendations that are both fair and affordable.

“Dramatic changes to migration make this balancing act even harder. If migration does fall, so too will the number of workers to support the increasing numbers of people of pensionable age. Undoubtedly this will put pressure on the affordability of the state pension, and as a result the age at which you can claim it.

“If this scenario does play out then it will require broader policy responses. If greater numbers of people have to stay in the workforce for a lot longer, the Government needs to consider policies to support them, for example, by doing more to promote flexible working. However, clearly there is a limit to how long people can continue working for, and there’s a limit to how much employers can support that.”

Under the OBR's central projection the old-age dependency ratio is 305:1000 today and it is projected to be 360:1000 in 2050. If we saw a drop in migration of 150,000, then the increase to SPA would need to be around a one and half years increase to SPA to keep the dependency ratios the same.

*http://voxeu.org/article/economic-impact-brexit-induced-reductions-migration-uk