Written by Steven Cameron, Pensions Director at Aegon
We urge the Government to follow Baroness Neville-Rolfe’s recommendation to explore introducing a State Pension early access scheme for individuals meeting certain qualifying criteria.
Currently, while there is flexibility to defer taking state pension in return for an uplift in the amount received, there is no flexibility to take state pension from an earlier age. We believe there are major attractions in allowing individuals to choose to access their state pension from an earlier age (say up to three years early), subject to an actuarial reduction to make this fair for all and financially neutral over time.
Indeed, we would go further and suggest this should be an option for all over 65s, rather than focussing solely on physically demanding roles, to reflect the many mental stresses as well as physical pressures on individuals’ wellbeing.
While the Government has chosen not to accelerate the planned increase in state pension age to 68, Baroness Neville-Rolfe’s report clearly shows that future increases are highly likely. With every increase, the benefits of offering flexibility increase, as widely varying health and employment situations make a compulsion to wait longer for state pensions increasingly divisive, disproportionately affecting the less wealthy.
The Government’s review will need to consider those who are heavily reliant on the state pension and if an actuarially reduced weekly amount could take them below the means tested benefit threshold. But with millions increasingly benefitting from automatic enrolment, most employees will have a meaningful private pension, reducing the number facing this risk.
However, there are some groups including the self-employed who don’t benefit from auto-enrolment and anyone considering early access should be given offered advice or guidance from Money Helper, including to understand any impact on means tested benefit eligibility.
The pension freedoms for Defined Contribution pensions allow extensive flexibility, which is proving highly popular, allowing individuals to draw their pension income when and at a level that suits them. We warmly welcome the Baroness’s recommendation that this be explored albeit to a lesser extent for state pensions.