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Malcolm McLean: The case for early state pension access

Former Confederation of British Industry director general John Cridland’s final report on his Government-commissioned review of the state pension age was rather less radical than many of us were expecting.

The interim report published last year had floated a number of possible changes directed at making retirement ages more flexible. But all these appear to have been cast aside in favour of retaining a single state pension age for all, payable at increasingly later ages, in the interests of “making the future both fair and sustainable”.

Cridland has rejected calls for early access to the state pension for people in poor health. But he said additional means-tested support should be made available one year before state pension age (effective from when state pension age reaches 68) for those unable to work longer because of ill health or caring responsibilities. The review has also recommended the triple lock be scrapped in the next parliament and replaced with a link to earnings.

We have yet to hear how the Government intends to act on the back of this report, but I would be surprised if ministers would want to do anything materially different than what it has proposed at this stage. That said, what they and subsequent governments will have to accept is that they cannot keep pushing the state pension age back indefinitely. Longer life expectancy overall does not necessarily equate to every individual’s ability to carry on working past current state pension ages, let alone those that may apply in the future.

There has to be a case for allowing people early access to their pension on reduced terms once the state pension age gets to 66 and beyond. If we can give someone who elects to defer taking their pension an uplift of 5.8 per cent for each year of deferral, we could presumably do the same in reverse for those opting to receive it in advance of their official state pension age from a minimum age of, say, 65 starting in 2020 – perhaps limited to a maximum of three years in total.

I do not see anything difficult or complicated about any of this, as I know some would have us believe. It would be both logical and cost-effective in turn.

The other alternative – building on but bringing forward in time the Cridland proposal for when state pension age reaches 68 – is to freeze the minimum age for claiming pension credit at 65 from 2020. However, this is likely to be more costly for the Government overall, could have wider repercussions and would probably be rejected  in consequence.

The Government’s response to the Cridland report is due out next month and that should give us an indication as to the possible direction of travel until the next formal review five years on. In the meantime, I fear state pension ages are likely to remain a moving target for some time to come.

Malcolm McLean is senior consultant at Barnett Waddingham

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