Plans to halve the increase pensioners receive when they defer their state pension have been criticised by industry experts.
In a written ministerial statement submitted on the last day of Parliament last week Steve Webb, the pensions minister, announced that from 6 April 2016 someone who decided not to take their state pension at retirement age would see their deferral bonus cut from 10.4 per cent per year to 5.8 per cent per year
The department for work and pensions said that around nine per cent of the state pension caseload across Britain got an increase paid with their state pension due to previous deferral. This amounts to around 1.2m people a year.
Tom McPhail, head of pensions research at Bristol-based Hargreaves Lansdown said the government had used the last day of term to slip the announcement in. He said they had shovelled out the less popular outstanding announcements before heading off on holiday.
Mr McPhail estimated that the reduced rate of increase means someone choosing to defer for one year will now have to live for around 19 years to benefit from the decision; this compares to only around 10 years under the current rate of increase of 10.4 per cent.
He said: “This might still be an attractive proposition for someone in good health with substantial private savings or who is willing to carry on working. It is important to bear in mind that the old (current) rate of increases has been particularly generous. With the population living longer and more people staying in the workforce later, it is hardly surprising that the government has chosen to cut back on this generous rate of return.”
The two-tier system of the basic state pension and the second state pension (S2P) will be replaced by the flat-rate pension from April 6, 2016.
INDUSTRY VIEW
Chris Budd, managing director of Ovation, in Bristol ,said: “The government needs to leave pensions alone and stop playing politics with pensions. People who defer their pension want to be able to plan and changing things removes people’s ability to rely on that.”
