• PENSIONSANDSAVINGS.COM

    From Ros Altmann:economist and pensions,
    investment and retirement policy expert

  • pensionsandsavings.com

    Making the State Pension more flexible should focus on State Pension Age

    Making the State Pension more flexible should focus on State Pension Age

    • State Pension flexibility could be welcome, but for State Pension Age, not amount of pension.
    • Just allowing people to take part of their State Pension, while still requiring them to wait to an ever-rising State Pension age, will not remedy the injustices in the current system.
    • We already have the lowest state pension in the developed world and receiving only part of it will just add complexity, but will not help those in failing health or caring for others.
    • Current State Pension system favours those healthy and wealthy enough to wait longer before drawing it, but those less healthy and less well-off receive no recognition in National Insurance, even if paying in for 45 or 50 years.

    The report released by Aviva calling for more flexibility in the State Pension age is interesting, but seems to me to miss the main advantages that flexibility might offer. The real problem with state pensions is that the starting age has risen so sharply and many people, especially women, desperately need to receive payments before they reach the ever-rising age.

    Early access to state pension would be a much more valuable change than still forcing people to wait longer and then choose to have only part of the amount. We have the lowest state pension in the developed world and offering people just part of it is not the answer in my view. However, allowing some to receive money sooner would have tremendous social advantages.

    Flexibility to help those in poor health as there is nearly a 20 year differential in healthy life expectancy: This type of flexibility, with a band of ages at which you could start receiving State Pension, perhaps under certain conditions, would recognise the enormous differences in healthy life expectancy across the UK. Currently, depending on where you live or what type of career you had, there is nearly 20 years difference in healthy life expectancy. There is no recognition of this in the state pension system. So even if you are terminally ill, have paid 50 years of National Insurance and have no other pension, you can’t get a penny of your state pension before you reach pension age.¬†Average life expectancy may be rising, but forcing everyone to wait longer while there are such significant differences in healthy life expectancy is unfair to those in the poorest health, many more of whom will die without ever receiving a penny of state pension.

    Flexibility to recognise carers: If people are caring for loved ones and are already in their early 60s, there would be social benefit in allowing early access to state pensions to reward family carers who have such difficult lives.

    Flexibility to recognise extra-long NI contributions: Perhaps people who have paid 45 or even 50 years of National insurance could be allowed their state pension sooner. Currently, you only need 35 years NI for a full pension and can’t get any state pension until you reach the starting age, regardless of how many years contributions you have paid beyond 35.

    State Pension inflexibility does not meet social needs efficiently: This kind of flexibility would fulfil a social need, recognise individual differences and be a positive step forward for the current inflexible system.

    Allowing people to take part of their State Pension will add to complexity and make it hard to predict future State Pension: I believe a flexible band of pension ages would be a far better reform than the complexity of people taking only a fraction of the pension and then the remainder increasing a bit over time. This partial access would make it almost impossible to predict what payments will eventually be received when fully retired.

    2016 New State Pension was designed to get rid of such complexity and be much simpler: The rationale of the new state pension, introduced in 2016, is supposed to be that it is simpler than the old multi-year system and people have a better chance of predicting what they will get from the state. If new complexities are added, that would undermine the simplicity.

    Current system favours the healthiest and wealthiest, while leaving out many in poor health: It is true that there is already some flexibility in state pensions, but this is only for those people healthy and wealthy enough to wait longer than the starting age before taking it. There is nothing for those who are less healthy and less wealthy to enable them to get some of their state pension sooner, even if they desperately need it.

    Encouraging later life working is absolutely right, but not everyone can work longer: The idea of encouraging later life working is excellent, but not everyone is able to. Forcing people to wait till State Pension Age and then work part-time may help some, but leaves out so many who are not benefitting from the current system at all. Employers already avoid National Insurance when employing people over State Pension Age and those who want to keep working do have opportunities to do so, but society would benefit from addressing the problems of older people who truly cannot or should not keep working. Allowing them early access to their State Pension could be a real benefit to those citizens.

    Opportunity to help address problems caused by rises in State Pension Age: I would love to see a ‘one nation’ Government offering some help to those who otherwise will struggle to make it to state pension age, or have caring responsibilities that could be easier with an early pension, so carers are under less pressure to keep working full time.


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