Aegon: Future increases in state pension age should be accompanied by new flexible options of early access

by | Dec 5, 2022

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Written by Steven Cameron, Pensions Director at Aegon

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 2039. There is now speculation that as part of the Government’s response to a consultation on how to set the state pension age in future, the increase to age 68 may be brought forward to the mid-2030s.

Beyond that, with increased life expectancies, there is a strong likelihood it will keep rising. State pensions are a very costly part of Government expenditure and deferring when they start being paid would save the Government significant money. But these increases will be of major concern to those who simply feel unable to keep working till late into their 60s. 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 full time work. This could be because of their health, a physically or mentally taxing job or caring responsibilities for elderly parents. We’re already seeing as 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 say three years earlier, at a reduced amount to make it financially fair for all.  

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, reducing their reliance on the state pension and the risk of falling below means tested thresholds. A more flexible approach to state pension age would not only meet the more varied ways people now retire but would also go some way to alleviate the concerns of an ever increasing ‘standard’ state pension age.

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