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Freedom and choice for the State Pension

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Luke Carter

Luke Carter

Regulatory Advisor

asks “Should freedom and choice refer to the State Pension?"

22 Sep 2016

What’s your State Pension Age? Traditionally this was 65 for men and 60 for women; once a person reached this age they qualified for a pension paid by the government (although there are many different nuances to this that I’ll save for another time). Being a gender-biased situation, the government took steps to equalise the age that men and women could draw their State Pension.

Between 2015 and 2018 the State Pension Age for women is being increased to 65 and, for both men and women, it will be increased to 66 between 2018 and 2020. Further increases are laid out in legislation. These increases have been driven by a combination of improvements in how long on average we are all living, and the government’s policy that 'retirement' should cover a third of our life.

There is an inherent flaw in the current one size fits all approach; it does not account for the fact that not everyone is living longer. According to government statistics, life expectancy in some occupations and in some locations has seen relatively little improvement in the last 15 years. Current policy therefore discriminates against people in more physical jobs (who typically are lower paid) and those who live in more deprived areas where improvements in life expectancy are below the UK average. Under current policy these people will not spend a third of their lifetime in retirement.

Recognising this issue, there is increasing support for a more flexible approach to State Pension Age, including ideas such as allowing earlier access to Basic State Pension at a reduced rate or targeting more at-risk groups through means testing, with a lower State Pension Age for the poorest sections of society.

The government has already introduced, with great fanfare, 'Freedom & Choice' for other pension savings to allow consumers flexibility about how to take their later life income, in line with the trend to phase more gradually from work into retirement. Should we not therefore have freedom and choice over when we start to draw our State Pension as well?

Luke Carter is Regulatory Advisor at Aquila Heywood, the largest supplier of life and pensions administration software solutions in the UK.

Further Reading