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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

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. Christine Brightwell 9th March 2016 at 10:10 am

    I can’t help but feel that this way madness lies. Perhaps it would be better to concentrate on what we have to deal with as the more recent changes bed in – and take some learning from the results

  2. “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.” So much for the idea of a flat rate State Pension which would no longer punish those who have private savings, then.

    We do not have a problem with employing over-50s in this country. There are plenty of employers only too happy to employ people in late-middle-age (especially as they’re more likely to actually turn up for work on time). The only problem is with people who have unrealistic earning expectations, who think that just because they’re old (or “experienced”) they’re entitled to a higher wage even if their experience is of no practical use; in short, that they are too good to man a checkout. This is not an age-specific or intergenerational problem, of course – there are many young people on benefits because they mistakenly think they are too good to man a checkout as well.

    But this is nothing to do with the State Pension, which is designed to keep body and soul together when you are too old to do any work, not for people who just don’t want to.

  3. The sub-title to the white paper which introduced the upcoming changes was “a simple foundation for saving”. Multiple layers of complex additional benefits have been introduced since 1948 to address perceived inequalities in the system. STP is supposed to be “simpler” for the public to understand. Try explaining “transitional arrangements” to your average client.
    What is really needed is education rather about the current (post-April) regime and I agree with Christine that these should be allowed to bed in. Advisers have a key role to play in this.
    The white paper also states that the quinquennial (love that word) reviews of changes to SPA will consider the social and economic effects of continually raising this age. For example, what sort of employment log-jam will this create if older people need to work until 75? Whether you believe that these effects will be considered or not, I’m willing to bet 10p that within a further ten years we’ll see legislation that makes STP a totally means-tested benefit.

  4. Just leave it!!

  5. “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.”…Tom, it’s one thing or the other unless you are suggesting some form of ‘means testing’ maybe?

  6. Very interesting longevity table. Just confirms my decision to move from Manchester to Harrow 17 years ago!

    One wonders what – if anything – they will do for pensions already in payment and of course will they tamper with those who have bought into the Class 3A voluntary contributions? One might wonder – if they were so concerned about pensions why offer these at all. I can understand encouraging those in Manchester to purchase, but those in Harrow and Kensington (who are more likely to have the wherewithal to partake) doesn’t make a lot of sense.

  7. One visit to my local B&Q tells me that gaining employment into ones 60’s and 70’s is very possible!

  8. When I explain pension savings to clients its best to keep it very simple.

    You work on average 40 years to 50 years. So, if lets say you wish to go on holiday to the US next year and you start saving today over twelve months, you are going to the US, if you leave it for three months, you have to save harder, but you most likely will go to the US, if you leave it six months you are no longer going to the US but could afford a holiday abroad and finally if you leave it until three months before, well you most likely are going camping in the UK. If you save hard throughout your working life you will be able to retire, if you don’t you will be working until you drop. The longer you save the bigger the pot of money, it really is that simple.

    Pensions are not difficult, save enough relative to your earnings and you will have a good retirement, don’t save, good luck your going to need it.

    Consumers understand this. They don’t understand why retirement age needs to increase, to them they were promised a pension at age 65, some at age 60. In the past there has been this belief the Government will provide. It is time for politicians to stop over promising, using pensions as a political football and educate the public that if they want to retire early, then you need to sort it out as the state cannot afford it.

  9. Are people missing the obvious?? Raising the pension age increases the size of workforce. Waspi women for example theoretically be looking for jobs in a country already struggling to employ too many people. Historically there’s been over a million unemployed, this will only grow with increased pension age!! Will the savings on pensions cover extra benefit outlay? How will people in manual workers fair? I’m also fairly sure people don’t aspire to work in b&q once cast aside because of their age!

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