State pension age review: interim report published
An interim report presenting the progress of the government’s independent review of the state pension age has today been published.
Led by John Cridland CBE, the report’s remit is to consider whether the state pension age should be further increased beyond 67, which it is legislated to reach by 2028. Under the current timetable it is expected to only rise again to 68 between 2044 and 2046.
In the interim report, Mr Cridland outlines the challenges that are being faced by the government in terms of rising life expectancy and its impact on the UK’s welfare bill. He also explains the ‘three pillars’ that need to be considered, which are affordability, fairness – in particular between generations, and a need to support ‘fuller working lives’.
Any major changes, Mr Cridland, says will have a disproportionate impact on certain groups, for example carers, people with disabilities, the self-employed, ethnic minorities, and women – particularly as these groups may be less able to build up a private pension provision.
The report states: “If any changes are made to the state pension age, additional support may be required to mitigate the impact on the seriously affected groups… and smooth their transition between work and retirement.”
In terms of possible reform, the report debates the merits of a fixed retirement age with a more flexible system that would allow more vulnerable groups, such as less healthy individuals, to access a reduced income earlier.
‘It’s not the time to complicate matters’
However, Tom Selby, senior analyst at AJ Bell, describes the report as “underwhelming”.
He says: “It sets the scene without ever letting us in on what the final report might propose. The report acknowledges both the need for greater flexibility in the system, particularly for vulnerable people, and the value of a universal state pension age. Squaring this circle will not be easy.”
Steve Webb, director of policy at Royal London, and former pensions minister, says Mr Cridland needs to keep his proposals simple.
He explains: "The Cridland review is right to stress the value of having a single age at which state pension can be drawn. Just at the point that the state pension is moving to a simpler flat rate system it is not time to complicate matters by having different pension ages for different people.
“It is true that people in different parts of the country and different occupations may have lower life expectancy and poorer health outcomes. But the right response to this is to tackle those health inequalities at source rather than to use the blunt instrument of the state pension to solve these wider social and economic problems.”
‘Current system penalises those in poor health’
According to the report, life expectancy is improving – particularly amongst men. For males born in 2016 life expectancy is now 90.6 years, compared to 93.5 for females.
However, it says that there are massive regional differences. Men born in Greater Manchester, for example, have a life expectancy that is 2.4 years less than those born in Greater London. Wealth also affects life expectancy. The difference in life expectancy, again for men, is some 5.9 years between the lowest and highest socio-economic groups.
This means that even though every individual is required to pay the same amount of National Insurance to get the state pension and claim it at the same age, some groups will get better value than others.
Pensions expert Ros Altmann says it is important to consider social fairness, as well as cost. She says: “The current State Pension system is increasingly seen as unfair. Those who reach state pension age in good health and with other private income can keep on working or waiting longer and achieve much higher state pensions when they do finally take them.”
This is because those that have sufficient funds are able to boost their state pension by putting back the date at which they start to claim it.
She adds: “By contrast, people who desperately need their state pension before they reach state pension age cannot receive any money at all. State Pension age has been rising sharply, as indeed has the age at which Pension Credit can start being paid to both men and women.
“This means the current system is penalising those who are in poor health, possibly due to having had very long working lives in physically demanding jobs. The current rules favour higher-earners, living in more prosperous areas and who have less strenuous jobs, or are in good health."
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.