PENSIONSANDSAVINGS.COM

• State pension age review needs to consider flexibility to recognise vast differentials in healthy life expectancy. 
• Ever rising age disadvantages the poorest and least healthy as poorest Brits only stay healthy to around age 50, but wealthiest to age 70. 
• Wealthiest groups can get even higher pensions if they delay their pension age but poorest who are least likely to have private pensions, cannot get a penny early even after a 45 or 50 years National Insurance record. 
• Flexibility allowing early access plus longer contribution record for full state pension would be fairer way to control costs rather than just raising pension age for everyone. 

I welcome the announcement of the second review of state pension age, as required by the 2014 Pension Act. The actuarial analysis by the Government Actuary Department and the independent review by Baroness Neville-Rolfe could help to remedy some of the injustices in the current system, which penalises the poorest and those in failing health.

Vast differential in health across the country: Just raising state pension age on the basis of increasing average life expectancy fails to recognise the vast differentials in health of older people across the workforce.

Poorest groups only stay healthy to around age 50 and are less likely to have private pension: ONS analysis shows that the most deprived decile of the population tend only to stay healthy to their early fifties, with men and women in this poorest group only staying healthy on average to around age 52. These are also the people who are least likely to have much, if any, private pension. Therefore, they may be wholly reliant on State benefits in retirement. The healthy life expectancy of the most deprived groups has not increased dramatically and they may struggle most to keep working into their sixties. Forcing them to keep waiting longer to start receiving their state pension, regardless of their health or length of National Insurance record, will increase the social inequity of our state pension system.

Wealthiest stay healthy till around 70 and can draw on private provision early if needs be: In contrast, the wealthiest decile has a healthy life expectancy which is now to more than age 70. For these groups, waiting longer to start their state pension is not much of a problem, especially as the better off groups are more likely to have private pensions or other things they can live on if they need to stop work sooner.

No recognition of people who genuinely can’t work:  It seems strange that our state pension has completely failed to recognise the differentials in health and work ability between different groups. There is no allowance to pay an early pension to those who genuinely cannot work, even if they have contributed for four or five decades. I believe it is necessary to cater for these people and consider allowing early access for some who need it.

Current system’s one-way flexibility helps the healthy and wealthy: At the moment, the state pension only has flexibility for those who are healthy and wealthy enough to wait longer. If they start their pension later they can receive a higher amount. But those in poor health with no private provision, cannot get any money sooner, even at a reduced rate. Such one way flexibility is socially inequitable and I am delighted to see that the ministerial statement mentioned consideration of healthy life expectancy.

Just raising state pension age is a blunt tool that hits the poorest: If the government wants to control state pension costs, just raising the state pension age is a blunt tool which will hit the poorest hard, while leaving the better off relatively unaffected.

What could be done? There are several options to consider when looking to address costs and sustainability, which would include:

Ill health early pension: The state pension system could factor in health status, so that those in poorest health could access some state pension from an earlier age, perhaps on an actually reduced basis.

Flexible band of ages to allow early access for extra long contribution and poor health: State Pensions might also be paid out at an earlier age for people who have long contribution histories and can also demonstrate poorer health. Perhaps there could be a flexible band of ages, rather than just one starting age so people can get some money earlier if they need it.

Increase number of years required for full state pension from 35 to perhaps 45 or 50 can help control affordability and sustainability:  The number of years to obtain a full pension could be increased to control costs in a different way. Currently only 35 years of National Insurance contributions are required for a full pension. This is nowhere near a full working life. Those starting work at 16 will have reached 35 years of contributions at age 51! Requiring 45 or 50 years for a full state pension could encourage longer working lives while also rewarding those who have paid in for more years. Many of the older cohorts today, especially women, had no chance to accrue private pensions in their early career. These are the people who will bear the brunt first of any decision to accelerate state pension age rises, especially if in poor health. I do hope the review will cater for their needs and not try to impose a ‘one size fits all’ policy that does not take their needs into account.

Also important to address labour market issues that prevent later life working:  The review will also look at how to ensure opportunities to work for the aging population. Facilitating later life working, perhaps part time work before full time retirement, could help ensure people with physically demanding roles could move to less strenuous work as they enter their fifties or sixties. But there will still be many who genuinely cannot work and who should not be left languishing longer on out of work benefits, just because average life expectancy is rising.