State PensionNov 3 2016

Raise state pension age to 80, says think tank expert

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Raise state pension age to 80, says think tank expert

The current state pension should be scrapped and replaced with a "workplace Isa" and an alternative state pension exclusively for the over-80s, the Centre for Policy Studies' Michael Johnson has argue.

In a report published yesterday (3 November), Mr Johnson argued that the current flat-rate state pension, which is available to everyone over the age of 65, was "no longer fit for purpose".

Quoting government figures, he said the National Insurance Fund needed to be "bailed out" by Treasury the last two years in a row - by£4.6bn and  £9.6bn respectively - demonstrating the current state pension was no longer affordable.

Mr Johnson said from 2020 the current state pension should be put into "run-off", meaning no further entitlements would be accrued.

In its place, he said a "senior citizen’s pension" should be created. He described this as  "residency-based" pension, available to everyone over the age of 80, set at around £200 a week - higher than the current £155.65.

The workplace Isa, meanwhile, would be funded through auto-enrolment. Contributions would receive a 50 per cent government bonus up to a "modest cap", and funds would not be accessible until age 65.

He said his proposal followed on from pension freedoms, announced in 2014 and brought in the following year, and the Lifetime Isa, which is due to be launched next April.

Mr Johnson was instrumental in former-chancellor George Osborne's decision to bring both these measures in.

"The proposals in this report, to replace the State Pension, take into account the broader pensions and savings environment," Mr Johnson said. 

"They are consistent with the direction of travel initiated in 2014: their purpose is to complete the journey, set against a pervading ethos of personal responsibility (self-reliance). They explicitly embrace the message that work pays, while providing a robust safety net for those who need it."

He argued that proposals to introduce a flexible state pension - an idea floated by John Cridland in the interim report of his inquiry into the state pension - were a "a slippery slope into immense complexity".

But former pensions minister Ros Altmann said Mr Johnson's proposals were "dangerous", "retrograde" and "wholly misguided".

"Relying on a workplace Isa is really dangerous and ignores long-term impacts," she said. 

"Reducing means testing in the state pension is a major achievement of the new system which should be warmly welcomed. So the CPS suggestion to means-test state pensions for under-80s from 2020 is wholly misguided." 

She claimed the suggestion "misunderstands human psychology" and would disadvantage the "majority of the country".

"As with other Isa-style proposals, it would mostly help the better off. Means-testing discourages private saving at the margin and using an Isa structure means more later life poverty, as people would have good reasons to spend the money as soon as they reach age 65. This seems regressive and retrograde policy thinking," she said.

AJ Bell's senior analyst Tom Selby, meanwhile, said the proposals would "cause uproar".

"The Government has already faced protests over relatively modest increases to the state pension age – there would be riots in the streets if they hiked it to age 80 overnight," he said.

james.fernyhough@ft.com