Pensions  

MPs told £2bn cost for early access to state pensions

MPs told £2bn cost for early access to state pensions

Allowing women early access their state pensions could result in an up front cost of £2bn if a targeted approach isn’t taken, a government committee of MPs has heard.

The Work & Pensions Committee heard evidence on a proposal to allow women to retire early on a reduced pension.

The move comes in response to criticism that women nearing retirement were not given enough notice about changes to their retirement age, now set to reach 66 by 2020.

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Martin Clarke, the government actuary, told the Committee: “Two billion is my estimate of how much is at risk if everybody took this option in a particular year.

“A solution that reduces that uncertainty but is not necessarily cost neutral might actually be more preferable.

“If you wanted to control that uncertainty it may be preferable to target the resources at those most in need rather than offer an option which could potentially encourage more widespread population to take advantage of an early retirement option and then force this cash flow change back on to the government’s books.”

But Alan Higham, founder of independent retirement adviser PensionsChamp, told the committee the issue was also a moral one.

He said the idea a woman essentially pays the government back at around £10 a week for the privilege of taking a pension early - by staying at a reduced rate for the for rest of her life - is undermined by whether it’s “appropriate to allow someone to exist on £140 a week”.

The committee, headed by Labour MP Frank Field, heard, should the proposal be taken forward, interaction with means tested benefits would need to be taken into consideration

Clarke said: “The potential interactions with other means tested benefits would bring more uncertainty into the equation.

“If this was embracing the potential for Pension Credit to expand to fill the gap created then if there were a high proportion of people who would likely qualify for Pension Credit they would be getting early pension at a reduced rate and compensation for the gap that was created by the reduction in later life.”

Committee member Heidi Allen, conservative MP for South Cambridgeshire, said the inequality of the system meant women who cannot work would be “squashed”.

Last month research revealed almost half of the population disagree with the changes to state pension age for women.