Early access to state pension 'not a solution' - Steve Webb
07 April 2016
Responding to the DWP Select Committee’s call for views on allowing certain women to draw their state pension early, Royal London has raised concerns that this would be of little or no benefit to the women most affected by rising state pension ages, whilst adding considerable complexity to the system.
Under the proposal, some women born during the 1950s who are facing sharply increased state pension ages would be allowed to draw a state pension earlier than planned, albeit at a reduced rate. In its response, Royal London points out that such a scheme could not practically be implemented until April 2018 at the earliest, by which time the women who had least notice of changes to their state pension age would already have started to draw a pension. For example, all of the women in the much-discussed group born between April 1951 and April 1953 would already be drawing a state pension and so the option of ‘early access’ would be of no value to them. There is also a question as to whether early access for women only would be compatible with equalities legislation.
Royal London’s response also considers whether the ‘early access’ option could be made a more permanent feature of the system, for both men and women, just as people can currently get a higher rate for deferring taking their state pension. However, the relatively low level of the state pension makes this a challenging option for those without other income to draw on. Someone who takes the state pension early will have an income below the pension credit level, which is likely to be unsustainable through retirement. This means that the option of early access at a reduced rate is likely to be most attractive to those who can complement their state pension with other income sources, and least valuable to the most vulnerable who may be largely dependent on their state pension income. However, if the real value of the state pension were to rise through the continuation of the ‘triple lock’ policy, the case for the option of early access might be strengthened.
Commenting, Steve Webb, Director of Policy at Royal London, said:
“The Select Committee is to be commended for looking at creative solutions to the problems faced by women who have seen large increases in their state pension age. Unfortunately, early access to the state pension is likely to be of very limited benefit to such women. By the time the Government had passed the necessary legislation, reprogrammed its computers and communicated the new option, most of the most affected women would already have begun drawing a pension or be close to pension age”.
“Giving all workers greater flexibility on state pension ages might be an option for the longer term, particularly if there was clear blue water between the headline rate of the state pension and the poverty line. Otherwise this would mainly be of interest to better off retirees who could combine a state pension drawn at a reduced rate with other sources of income. For those with little other income, surviving for twenty to thirty years of retirement on a pension below the poverty line would probably not be a viable option. There would also be huge complexity as the DWP had to invent rules to ensure that people who received a reduced state pension by drawing it early did not simply claim back the shortfall through claiming higher means-tested benefits”.
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Notes to editors:
- In its report on “Communicating state pension age changes”, published on 15 March 2016, the Work and Pensions Committee called on the Government to explore the option of permitting a defined group of women who have been affected by state pension age changes to take early retirement, from a specified age, on an "actuarially neutral basis". This would mean some women could choose to take a state pension sooner than scheduled in return for lower weekly payments for the duration of their retirements. The "reduction factor" used should ensure that, on average, over the lifetimes of the pensioners concerned, there would be no additional pension costs to the exchequer.
About Royal London:
Royal London is the largest mutual life, pensions and investment company in the UK, with Group funds under management of £84.5 billion. Group businesses provide around 9.1 million policies and employ 2,988 people. (Figures quoted are as at 31 December 2015).