State pension age review could pave the way to ‘fundamental’ reform

Retirement plan-pension-report

The first independent review of the state pension age is a chance for the Government to explore fundamentally reforming the system, experts argue.

Former CBI director general John Cridland has been appointed to lead the review, which following the 2014 Pensions Act must be carried out in every parliament.

The review will not cover the existing state pension age timetable up to April 2028.

But it will go beyond simply recommending changes to the age when people can begin drawing their pensions. It will also consider “variations between different groups”, opening the door to more radical changes to how the system works.

Hargreaves Lansdown head of retirement policy Tom McPhail says: “It would be complicated to have different rates but I think this potentially acts as a catalyst for a whole load more questions because you could move towards having the state pension as longevity insurance.

“So, for example, you don’t get state pension until you’re 75 but it kicks in higher, at say £13,000 a year. Up until then you run down your private savings. Obviously some people do not have private savings but you could fundamentally change the character of the interaction between the state pension and private savings.”

But McPhail questions how easy it is to introduce different rates. He says: “It would be very difficult to satisfy questions of simplicity and fairness once you deviate from the fairly simple universal system that we have today.”

Trade union the TUC is “not convinced” about raising the state pension age but pensions policy officer Tim Sharp says varying rates is worth discussion.

He says: “It’s quite difficuly to see how regional rates would work because people don’t live and work in the same area, and there are big variations. There are barriers but it would be good to have a look. Can you look at the length of people’s working lives? Manual workers tend to go into work earlier than graduates, so maybe it would be fairer to say they can take their state pension early.”

Likewise, Ringrose Grimsley IFA Victor Sacks thinks the idea of “retirement windows” would help align the state system with private pensions.

He says: “The state pension should be accessible at a lower age so it fits with personal pensions where you can access your pension at 55.”

However he warns it would be a mistake to alter state pension rates based on variations in regional or workplace differences.

He says:You could live in the south but if you’re going to overindulge you could die as early as someone in Scotland. I just can’t see how that would work in practice.”

Sharp adds the state pension age does not influence when people actually stop working.

He says: “We are rubbish at keeping people aged over 50 in the workforce and extending the state pension age doesn’t keep people in work. Just basing the age on life expectancy ignores other issues – for instance, healthy life expectancy is not going up at the same rate so people are not fit to work despite living longer.

“We’ve seen this with the whole Waspi debate [around women born in the 1950s not realising their state pension is changing]. Instead of people staying in the workforce they are thrown into working age benefits – that’s not good for Government spending.”

State pension age graphic