The state pension age should rise to 70 by 2030 according to Lord Adair Turner, the architect of the new state pension introduced in April.
The former head of the Pension Commission and former chairman of the Financial Services Authority has suggested that people who are currently in their mid-50s should work a further three years and only claim their state pension once they are 70. In return, they should be able to enjoy a more generous state pension.
Currently the state pension age is scheduled to hit 67 in 2028.
Moneywise columnist Jeff Prestridge says you shouldn’t rely on the new state pension to fund your retirement. Although it seems more straightforward, there will be winners and losers from the new pension system.
In a speech to clients of a private bank, Lord Turner said that there should also be means for manual workers and those on lower incomes (who are likely to have a lower life expectancy) to claim some form of state pension or means-tested benefit if they retire between 65 or 66 and 70.
Lord Turner will discuss his views with John Cridland who has been charged with reviewing the state pension by the Department of Work and Pensions. As the architect of the latest state pension reforms Turner’s comments are likely to be highly influential.
This review provides the opportunity to fundamentally redesign the state pension and an element of needs assessment could be introduced. Entitlement could be based on medical underwriting for example or payments could be regionalized to reflect variations in life expectancy in different parts of the country. Alternatively the state pension could become a safety net that only becomes payable once an individual has spent their own savings.
The report is expected to be published in 2017.
Tom McPhail, head of retirement policy at Hargreaves Lansdown says: “The state pension is a blunt instrument, which makes no allowance for people’s wealth or their life expectancy. However any deviation from the current state pension entitlement calculation based on a simple NI contribution history to one based on individual circumstances, could be both complicated and contentious.”
Mr McPhail adds: “Radical options, including medical underwriting, means testing, or using the state pension as a long stop for when someone has exhausted their private savings are all possible. The government will no doubt be mindful that it is very difficult to introduce any reform in this area of public policy without upsetting some voters.”