Aviva is calling on the government to allow individuals to make flexible withdrawals from their state pension, saying this would enable a phased approach to retirement as more people continue to work in later life.
A report on the challenges facing the mid-life workforce, published by Aviva today (February 12), argued that flexible withdrawals of the state pension from the age of entitlement would remove the “all or nothing” choice faced by workers, allowing people to claim part of their state pension.
The unclaimed state pension amount would then increase in line with traditionally deferred state pensions.
Under current rules people can claim their state pension in full or defer all of it while they continue working, but they are not able to claim it in part.
Aviva said changing these rules would allow people to have a phased approach to retirement which will help them save more for later life.
But it warned by introducing this flexibility more people would need to seek guidance and advice to ensure they made the correct decisions.
Therefore the provider is also calling on the government to increase its efforts to close the advice gap as many savers do not, or cannot, access regulated financial advice.
Lindsey Rix, chief executive officer of UK savings and retirement at Aviva, said: “There are several actions the government and employers could consider to better support workers in the 45+ age group.
“We believe the choice between claiming 0 or 100 per cent of the state pension no longer reflects our increasingly flexible working lives and we are calling on the government to allow individuals to make flexible withdrawals from their state pension when they reach their state pension age.
“We want to work with the government and regulators to make sure that suitable advice is accessible and affordable for the majority, within a properly regulated framework.”
Aviva’s research also found the state pension provided the largest single source of income in retirement for the average pensioner and that a more flexible approach would benefit businesses as people would work for longer.
Ms Rix said: “Our report shows there is a huge demand for a fuller working life amongst those aged 45+. However, we believe the state pension age acts as an artificial ‘hard line’ in the working lives of many.
“If we fail to prepare for an ageing workforce, the consequences will be damaging for generations to come. Not only could we see an increase in poverty in retirement; but also, a greater strain on our working population and a UK restricted from investing in its future as it struggles to navigate its present.”
Rival pension provider Aegon agreed with Aviva’s call for more flexibility on the state pension but prioritised giving people the option to take their state pension early subject to a reduction in its weekly payment to make it financially fair.
Steven Cameron, pensions director at Aegon, said: “We would like the government to explore allowing people to take their state pension from an earlier age, perhaps 63, at a reduced amount to reflect the fact it is starting earlier and will be paid for longer.
“The older the state pension is, the more difficult it will be for those in stressful or manual occupations to keep working until state pension age. Offering early access at a reduced level could be a big help to many thousands."
He added: “There is a need to make sure people don’t end up with an income from state and private pensions below the means tested benefit level.
"So some checks and balances might be required. But with some creative thinking this issue shouldn’t be insurmountable and should be well worth the prize if it helps many people with their transition into retirement.”
Last month (January 27), a Freedom of Information request by Canada Life revealed more than 14,000 individuals opted to stop receiving their state pension in the 2018/19 tax year, most likely to manage tax bills.
People in receipt of a state pension have the option to suspend and re-start payments only once, but this is not a well known among savers or experts, according to Canada Life.
amy.austin@ft.com
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