Early state pension for women could cost £2.3bn a year

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The Government faces a £2.3bn a year hit if it offers women affected by the increases in the state pension age early access, according to figures from Government actuaries.

Parliament’s Work and Pensions Committee is conducting an inquiry into offering early access in response to a campaign for transitional measures for women born in the 1950s, who have been hit hardest by the increase in state pension age from 60 to 65, which comes into force from 2018.

The state pension age for men and women will then rise to 66 by November 2020, before increasing again to 67 between 2026 and 2028.

In response, the committee has proposed allowing those women most affected to draw their pension early but at a reduced rate.

However, actuaries estimate the proposal could require a dramatic surge in Government spending.

In a written submission to the Committee, the Government Actuary’s Department said that the change could expose the Government to a potential increase in expenditure of £2.3bn, or 2.2 per cent of projected total spending on state pensions.

This would then be offset by reduced spending from 2025.

The figures are based on providing 95 per cent of the full rate of the new state pension to all of the women who would reach state pension age between April 2016 and April 2026, who were specifically affected by the acceleration of the increase in pension age brought about by the Pensions Act 2011.

The women are assumed to be accessing this reduced amount from the date at which they would otherwise have retired.

However, speaking in an oral evidence session earlier today, Committee chair Frank Field questioned whether the level of demand would be sufficient to equate to such a bill.

Field noted that a similar policy offering in Canada had only been used by, at most, 40 per cent of those entitled to access their pension early.

“40 per cent of £2bn is the sort of figures which Chancellors are sometimes able to lose in their accounts,” Field said.

Former CBI chief executive John Cridland is currently leading an independent review of how the state pension age should change, with a final report expected by next May.