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Govt to halve £300m state pension delay incentive

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Pensions minister Steve Webb has set out plans to halve the extra state pension people receive when they defer retirement in a move which will save the Government £300m a year.

Currently, the Government incentivises people to delay taking their state pension by increasing the payment by around 10 per cent a year for each year after state pension age.

Webb says there is little evidence the incentive encourages people to work longer and has tabled an amendment to the Pensions Bill which would reduce the annual deferral increase to around 5 per cent a year from April 2016 onwards.

The Department for Work and Pensions estimates the change will save the Government £200m a year in 2020 and £300m a year in 2030.

Webb says: “We propose that for every 10 weeks a person defers taking their pension, they get an extra 1 per cent on their pension.

“Earlier, I rounded that up crudely to state it as 5 per cent a year, as opposed to the current figure, which is about 10 per cent a year.

“We are therefore halving the advantage given for deferral.”

Webb says the reasons for putting forward the amendment are both financial and “conceptual”.

He says: “The measure does save us money. If we did not do what I have described, in 2020 the scheme would cost another £200m a year and in 2030 another £300m a year – significant sums.

“However, the justification is also conceptual. We do not have much evidence that spending money on incentivising people to defer their state pension really does anything.

“If we want to spend public money to enable people to work longer, my strong view is that keeping people in the labour market in their early 50s who might drop out because of ill health and a bad back is money vastly better spent than spending it on giving people slightly bigger increments because they draw a pension at 67 and not 66.”

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Comments

There are 14 comments at the moment, we would love to hear your opinion too.

  1. John Blackmore 5th July 2013 at 11:49 am

    Good idea. My wife will have deferred for 5 years ( to avoid paying higher rate tax). So having had the benefit it is now time to stop it for others. Guess that makes me a Tory ?

  2. What a load of deceiptful nonsense, S Webb should be ashamed of himself ” crudely rounding up” show us the stats, your already saving millions by SRA 67 or 68, who can afford the time to defer after that age. I remeber my grandfather working well into his late 70’s until he died on the job. I thought we were meant to be moving away from Victorian style working class poverty. Short memories. They should be aware of their own family history.

  3. It’s a shame as the numbers really stacked up for clients thinking about deferral…..

  4. Interesting. Deferring five years currently means pensioner worse off until 11 years pension paid at higher rate (ie 16 years from SPA). The change to 5% pushes the breakeven point to 35 years from SPA. The TCF analysis will be interesting reading.

  5. The so-called ‘incentive’ to delay taking the pension is not actually an incentive at all, it’s to compensate people for delaying retirement and missing out on pension payments that will not be paid! I’m sure he won’t have consulted the Govt Actuaries Dept over this to see whether 5% represents fair compensation. Farce!

  6. Considering pensions in payment usually increase by inflation each year (i.e. about 2.7%), it really won’t be worth anyone deferring payment any longer. This will probably end up costing the government more in the short-term? Just when they need the money!

  7. I suppose that £300m a year should be enough to for the MP’s salary increases, that the Independent Parliamentary Standards Authority wants to give them, with a bit left over for expenses.

    Obviously the rest of us, who are not crooks and would just like a half decent retirement, can take a running jump.

  8. My advice to clients now will be never defer.
    I am sure all advisers will say the same as the pensioner will lose out in a big way if they do in well over 95% of cases.
    Our pensions minister is showing us his caring side at last, lol.

  9. Show us the back of the fag packet workings please Steve ‘I make it up as I go along’ Webb. As Simon says (no pun intended) it will end up costing more overall as no one will bother to defer.

  10. What does he think he is doing? It’s destroyed my planning! I was planning to retire at 70, with 5 years deferment. My calculation was a flat rate pension at 65 should be about £160 p.w. Add 5 years deferment @ 10% is about £250 p.w. Add private pensions @ £160 p.w. and it totals £410 p.w. Enough to maintain my chosen standard of living. This reduces my state pension to £204.
    Steve Webb, I thought you were great but now?

  11. well they need to raise their own £10000 pay rise somewhere.

  12. Do these clowns not realise how much they are messing with peoples lives and their retirement planning?

    Can they not leave anything alone for 5 minutes?

    Deferral only benefits the Treasury!

  13. £80 BILLION a year on quangoes

    £50 BILLION a year on the EU

    £5 BILLION lost each year in overpaid tax credits

    BILLIONs wasted on overseas wars

    £11 BILLION on overseas aid

    etc etc etc

    And this bloke thinks he is great because he can hit our pensioners for £300 million!

  14. As demographics and reduced retirement savings mean that we have more and more people living and working longer my sense is the savings may be understated. We are in a pickle!

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