Chancellor Rachel Reeves has been urged to let UK workers take their state pension up to three years early – in exchange for lower annual amounts. In July, the then Work and Pensions Secretary announced plans to revive the Pensions Commission, which last met in 2006, to tackle the issue of working-age adults failing to put enough money into their retirement savings.
Liz Kendall warned that Britain faced a “tsunami of pensioner poverty” without major reform to the system as she launched a new pension commission. She also commissioned the next review of the state pension age, which is currently 66, amid fears it could rise, as longer life expectancy and annual ‘triple lock’ uplifts force up the cost of the state pension.
Now, after the Government called for ideas from the industry, pension provider Aegon proposed that Britons approaching state pension age should be allowed to take payments early in exchange for a slightly reduced annual payment.
It said doing so would allow those approaching retirement more financial flexibility and address inequalities caused by differences in life expectancy.
The age at which taxpayers can start to draw the state pension will rise from 66 to 67 from next year, and is due to reach 68 by 2046.
Steven Cameron, of Aegon, said that the higher the state pension age becomes, the more people will struggle to stay in work because of deteriorating health, taxing jobs or care responsibilities for elderly parents.
He added: “We’re already seeing increasing numbers of over-50s exiting the workforce due to ill health.
“A continually rising fixed state pension age risks becoming divisive and misaligned with the flexibility of today’s private pensions landscape.
“Increases to the state pension age also have a bigger adverse impact on those with lower life expectancies, who are often lower earners.
“Having to wait a year when you may only have five years of life ahead is a much bigger cut than if you’ve got 30 years or more to go.”
The ‘full’ new state pension is set to rise by 4.8pc to £12,547.60 a year in April, thanks to the state pension ‘triple lock’ which guarantees that payments rise in line with inflation, wage growth or 2.5pc – whichever is highest.
Chancellor Rachel Reeves has faced pressure to scrap the guarantee, which critics claim is unsustainable given a fiscal black hole of tens of billions of pounds in the public finances and an ageing population.
The Office for Budget Responsibility (OBR) estimated the annual cost of the triple lock would reach £15.5bn by 2030.
The Government is required to review the state pension age every six years, and the last review took place in 2023.
Dr Suzy Morrissey, deputy director of the Pensions Policy Institute, is leading an independent report on the state pension ahead of the next review.
Raising the age at which workers can claim the state pension is another way to reduce the cost to the Treasury.
Previous governments have tried to raise the state pension age, but ministers have struggled to make progress despite two independent reviews backing recommendations to increase it more quickly.
Former Chancellor Jeremy Hunt was forced to shelve a plan to bring forward increases in the state pension age after a dramatic drop in post-lockdown life expectancy, which made it more difficult to justify the changes.
Previous governments have pledged to give workers 10 years’ notice before any change in the state pension age.
But Steve Webb, a former pensions minister and partner at consultancy Lane Clark & Peacock, said early access to a reduced state pension would be a “bad policy”.
He added: “The UK state pension remains very low by international standards, and even the full pension is not enough to meet estimates of the income needed in retirement to fund a decent minimum standard of living.
“If people took their pension early and it was then permanently reduced, you could see large numbers of people in retirement living below the poverty line.”
