Aegon is pushing for greater flexibility in how people can receive state pensions, suggesting allowing individuals to start receiving their pension three years earlier at a reduced rate.
According to Aegon, an alternative approach is to commit to allowing access to the state pension at a reduced rate starting from age 68, even if the state pension age rises after that.
Aegon argues that a flexible state pension age aligns with varied retirement lifestyles and eases concerns about the rising retirement age.
But expected increases in life expectancy suggest that poorer people will ultimately receive less. Additionally, it may be necessary to raise the state pension age further, possibly to 74, to control costs if the next government pledges to maintain the state pension triple lock.
Aegon pensions director Steven Cameron says: “Those above or close to state pension age may be hoping that all parties will commit to retaining the state pension triple lock in their pre-election manifestos. But this comes at a high cost to those of working age.
“The state pension age is due to increase to 67 in 2028 and currently, the plan is to increase it further to age 68 by 2046 but this could happen sooner. There is now speculation that if a future Government commits to retaining the state pension triple lock, and set against likely future rises in life expectancies, further significant increases in state pension age may be needed to keep costs under control.
“State pensions are a very costly part of Government expenditure and deferring when they start being paid would save Government, or future taxpayers who fund them, significant money. But these increases will be of major concern to those who simply feel unable to keep working till late into their 60s or into their early 70s.
“Rather than an ever-increasing single age, we’re calling for the Government to explore offering individuals more choice over when they can start claiming.
“The higher the state pension age, the more individuals will struggle to stay in work. This could be because of their health, a physically or mentally taxing job or caring responsibilities for elderly parents. We’re already seeing increasing numbers of over 50s exiting the workforce due to ill-health. An ever-rising fixed state pension age could become increasingly divisive and out of sync with today’s flexible private pensions world.
“While individuals can already choose to defer their state pension in return for a higher monthly payment, there’s no flexibility to start it from a younger age. We support giving people the choice to draw it up to three years earlier, at a reduced amount to make it financially fair for all. An alternative would be to commit to allowing access from not later than say age 68, at a lower amount, even if the state pension age increases thereafter.
“Some individuals rely heavily on the state pension and opting for an earlier, reduced amount could leave their retirement income below the current threshold for means tested benefits. To understand any impact on their eligibility to claim such benefits, individuals might first be required to take advice or guidance from Money Helper. But as automatic enrolment into workplace pensions continues to mature, millions more employees are building up an increasingly valuable workplace pension, with fewer solely reliant on the state pension, so with less risk of falling below the means tested threshold.
“A more flexible approach to state pension age would not only meet the more varied ways people now live their ‘Second 50’ including when they retire but would also go some way to alleviate the concerns of an ever increasing ‘standard’ state pension age.”
Phoenix Insights head of research and policy Patrick Thomson says: “The state pension matters to all of us, it is an important intergeneration social contract helping to reduce poverty among retirees, paid for from contributions of the working age population. It is the biggest single part of the social security system and has been the foundation for many people’s retirement income for over 75 years.
“However, Phoenix Insights’ research exploring public attitudes towards the state pension found that understanding of the system is very low, including around what the ‘triple lock’ is and when people can access their state pension. A common misconception among the public was that National Insurance contributions are kept in a personal pot and accessed at state pension age rather than the state pension being paid for out of general taxation.
“As an increasing proportion of the population reaches state pension age in the coming decades, it is important that the system is trusted, sustainable, understandable and supports the financial security of retirees.”
“When thinking about the costs of the triple lock and the state pension more broadly, the government needs to consider two important factors: how much people are paid through the state pension and at what age they will receive it. Any changes to either of these factors have a huge impact on individuals planning for their retirement, and for our public finances. We know that simply raising the state pension age doesn’t mean that people will be able to work for longer. We need proper support to help make work better for more people, and to support those unable to work to higher ages.”