21 July 2017
- Government needs to rethink the retirement contract for older people
- Just relying on the triple lock and rising State Pension age is not sustainable
- National Insurance needs to help those with lower life expectancy or needing social care
The Government has just announced that the UK State Pension age will increase faster than previously expected. By 2039, nobody will be able to start their state pension before the age of 68. This affects people born between 1970 and 1978 who would be eligible to receive their state pension at age 67 under the current planned timetable.
This rise was recommended by John Cridland’s recent official review of State Pension age and is based on forecasts of average longevity. As ‘average’ life expectancy is rising, and the Government needs to control State Pension costs, the state pension age keeps rising. This will save around £75billion to future taxpayers.
However, it does not take any account of the significant differences in life expectancy across the country, between social classes and also between occupations. The current national insurance system makes no allowance for people who will not live long enough to reach state pension age, or who will die soon afterwards.
National insurance amounts to over 25% of salary for most people, yet some will get little or no pension even if they have contributed for the full 35 years. Of course, as life expectancy and health improve, most people should be able to wait longer for their state pension. But what about those who cannot?
I would like to see more flexibility in state pension age: perhaps with a flexible band of ages at which the pension could start, or perhaps allowing people to take their state pension at a lower age, either because they are seriously ill or because they have worked for more than 50 years.
People might be allowed to start their pension between the ages of 65 and 70 – perhaps even with the rate they receive being adjusted for early access. This would be much fairer to more disadvantaged people, allowing them a choice they are currently denied. There might also be earlier receipt for people who have, say, 50 years worth of National Insurance contributions. For example, if they had left school at 16 and contributed for 50 years, perhaps they could get their pension at age 66.
At the moment, the state pension is flexible only for those who are healthy and wealthy enough not to need to take it at state pension age. If they can afford to wait longer, they can get a higher state pension; but if they cannot manage until that age, it is just too bad. They cannot get a lower pension, they will get not a penny earlier. Is this the best we can do?
It is true, as John Cridland says, that there would be some difficulties in this approach, but just because a policy is challenging does not mean it is wrong. The central issue here is whether the state pension should be run on a one-size-fits-all approach, based purely on estimates of the “average”, or whether it should have some flexibility to account for people’s increasingly flexible lives.
Yes, it is great news that more people are living longer. And most people can work longer – but surely we can find ways to include those who are unable to do so, and who have much lower-than-average lifespans.
I would like to stress, though, that I do not agree that the state pension age should never rise above age 66, as proposed by the Labour party. And the cost of allowing everyone to get a full pension at 66 for decades to come would be too much of a burden on younger generations in our pay-as-you-go national insurance system.
Clearly, many people will want to work longer, and can wait for their state pension. However, it would be fairer to allow some to choose to take a pension sooner, if they really need to.
We need to move away from the idea of just one “magic” age at which people should aim to stop working and live on a state pension. A band of ages would take us from this one-age notion and would accommodate the reality of 21st-century retirement, which is that people will increasingly move from full-time work, to part-time work, before stopping altogether.
The more we can encourage this kind of “pretirement” phase, the better it will be for our ageing population. Individuals who can work flexibly in later life can achieve higher lifetime incomes, can boost overall economic activity, and could have more money to spend in their advanced older age.
Finally, the current state pension system offers no help for social care. If William Beveridge was designing our national insurance arrangements now, he would surely make provision for care needs in advanced old age, rather than assuming that the only income for retirement the state needs to pay is a state pension.
Incorporating social care into national insurance would offer an opportunity for the government to rethink state pension age and overall retirement provision, and take account of individual needs. Leaving out those who have been hard manual labourers for all their working lives, or who have a much shorter life expectancy, may need to change.
Future reviews of social care and state pension age would provide a chance to reconsider these issues. A fairer level of social support in retirement would be a major improvement on the current situation. Just promising a ‘triple lock’ on parts of the state pension is not enough for pensioners. It’s time to think again on how we help older people.