Govt warned against early access on state pension

Pensions-savings-retirement-piggy bank

Allowing early access to the state pension may not benefit those who need it most, experts have warned.

Early access was discussed in a Government-commissioned report released last week by former Confederation of British Industry director general John Cridland, who was asked to lead a review of the state pension age in March.

Cridland’s preliminary paper suggests various policy interventions that could create a more flexible approach to retirement. These include allowing people who started work at a young age to claim their full state pension early; early access to a reduced state pension; or early access for those with a lower life expectancy based on their occupation or where they live.

Early access has been supported by many in the sector as an extension of the private pension freedoms.

However, Royal London policy director Steve Webb says allowing early access for people who have built up many years of qualifying National Insurance contributions might not benefit disadvantaged groups.

He says: “Paradoxically, the people who build up lots of qualifying years tend to be healthy men. This is because the most reliable way to build up a full contribution history is to be fit and healthy and in paid work for a long period of time.

Although there are lots of credits for people who aren’t working, there are lots of gaps in the credits ‘safety net’.”

Aegon UK pensions director Steven Cameron argues early access to the state pension should be available to everyone, albeit at a reduced level. He says if early access to the state pension is allowed, it should come later in life than private pensions, which can be accessed at 55.

He says: “If you allow people to start accessing state pension earlier at a reduced level you create a timing issue for the Government because they would be starting more state pensions sooner. Over the next 30 years that would even itself out, but in the short term they would be paying more out than they had planned, which would create a budgetary timing issue.”

Advisers gave a mixed response to the idea of early state pension access. Retirement Intelligence director Billy Burrows says: “Anything that makes pensions more engaging and flexible is to be welcomed. On the other hand, we have to protect people from accessing their money too early for the wrong reasons.”

Pilot Financial Planning director Ian Thomas says: “These are intergenerational problems – we need a cross-party consensus based on fact. The problem is the bigger picture, that there is no stability in the state pension system. It is demoralising for a lot of younger people who think they will have to work until they drop.”

The preliminary report also asked for information on how to make sure any changes to state pension entitlements take women’s lower pension incomes into account.

Last week, the Women Against State Pension Inequality group hired law firm Bindmans to bring a case against the government over state pension age changes for women born in the 1950s.