PensionsAug 25 2017

Aegon calls for early cut price state pension

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Aegon calls for early cut price state pension
ByMaria Espadinha

Individuals should be allowed to retire two years earlier with a reduced state pension, according to Steven Cameron, public affairs director at Aegon.

Mr Cameron said the government should have gone further during the last review of the state pension and increased its flexibility.

In July, the government announced that the state pension age increase should be brought forward to 68 between 2037 and 2039, due to increases in life expectancy.

Under the current law, the state pension age is due to increase to 68 between 2044 and 2046.

The change to the state pension age will leave 7.6 million people £10,000 worse off, according to analysis by the House of Commons Library.

Aegon’s proposal was deemed too costly and too complex by John Cridland, responsible for the state pension age review, Mr Cameron told FTAdviser.

During the presentation of Mr. Cridland report, Mr Cameron asked him why people could not retire earlier agreeing to get a cut on their pensions.

“He said that with the current system people could go claim benefits elsewhere in the system,” Mr Cameron said.

But Mr Cameron added: “Surely during the next 20 years we can arrange a solution [for this problem].”

“We want people to have the flexibility to design their retirement,” he concluded.

According to Jonothan McColgan, director and chartered financial planner at Bath-based Combined Financial Strategies, early access to the state pension at a reduced rate is a “wonderful idea” in theory, but impractical in practice.

First, the state pension is not a fund, Mr McColgan argued: “It is in effect a benefit paid out of current taxation […]. Like all benefits it can be reduced, taken away or means tested by changes to legislation.”

Secondly, because the state pension is paid from taxes, the “ability to budget for future pension liabilities will be one of the main ways that future governments can ensure they meet their liabilities,” he said.

An “early access to the state pension will cause huge problems with forecasting these budgets,” he added.

Thirdly, flexibility would increase the administration costs, as seen with the pension freedoms which were introduced in April 2015 to allow over 55s access to their entire retirement pot, Mr McColgan said.

Last, but not least, Mr McColgan noted that the “state pension is the last security blanket for those arriving at retirement with very little”.

He said: “Will they really be better off being given access to this pot at an early age on a reduced amount? I would argue sometimes that you need to save people from themselves.”