No further entitlements to a state pension should be given after 2020 to reduce the cost to the government, a think tank has argued.
In a paper today, The Centre for Policy Studies’ Michael Johnson argues that while past entitlements should be honoured, the state pension is “facing fiscal calamity” without reform.
Total spending on the state pension has risen by a quarter since 2010/11.
Johnson argues that after 2020, a residency-based Senior Citizens’ Pension should be brought in, providing a larger income, say £200 a week, from age 80.
Johnson proposes complimenting this with a Workplace Isa, funded with a 50% state bonus and subject to a cap, to accommodate auto-enrolment contributions from employers.
The assets would be inaccessible until age 65, encouraging people to either annuitise or go into drawdown before reaching their Senior Citizens’ Pension age.
AJ Bell senior analyst Tom Selby says that Johnson’s solutions are likely to prove controversial.
He says: “Government has already faced protests over relatively modest increases to the state pension age – there would be riots in the streets if they hiked it to age 80 overnight.
“We do, however, support the idea of establishing an independent commission to review the pensions tax system and bring a period of stability for savers. Rather than tearing up the foundations of the UK retirement market, the Government should task this commission with evaluating the system we have now and recommending what, if any, reforms are necessary.”