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Govt warned against early access on state pension

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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.


John Cridland BBA Conference 2012 480

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There are 3 comments at the moment, we would love to hear your opinion too.

  1. Current NRD = 65. Basic state pension £120/wk

    So you want to take your pension at age 63? OK we will give you £75/wk. At 3% escalation it will take you about 17 years to reach the original starting £120. (And don’t forget this in itself would have escalated in the period).

    As it happens 17 years from age 63 brings you to 80 which is slightly over the UK average life expectancy for men.

    And this is not yet another money saving wheeze dreamed up by the thieves at the Treasury, dressed up to look like a great deal for the ignorant?

  2. Some will already have been ripped-off enough by paying in NI Conts for 50 years instead of the 35 qualifying years required. Also, if enhanced annuity providers can calculate income based on health/lifestyle, surely it can’t be beyond the wits of a Government Department to do the same?
    Oh! I used the words ‘wits’ and ‘Government’ in the same sentence, there’s the answer.

  3. How do they get around the whole “minimum income guarantee”? Take your pension early, then get topped up to what you would have gotten anyway the moment you hit state pension age. Pensions have one purpose “to provide an income in retirement”. Those that die young, subsidise those that live a long time.

    Doing this would effectively reduce/remove mortality cross subsidisation with state pensions, which would dramatically increase the burden on the state. So who is going to pay? “the money tree”?

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