The government’s independent state pension age reviewer John Cridland has said he will explore whether it is possible to “smooth the transition” between the working age and retirement in his interim report published today.
Through recognising the different circumstances and socioeconomic issues that affect people’s ability, or inability, to work and live longer then others, the report floated the idea of whether a “more personalised” way of assesing what it means to retire could be better than a fixed decision point.
Although it recognised “there is no easy way” to determine when people should stop working and retire, however, Cridland’s report acknowledged there is value in the simplicity and symbolism of offering a clear point in time to retire.
Alongside the interim report published today, a consultation on the State Pension age has opened that will end on 31 Decemeber 2016. The consultation will ask respondents to address all of the points made in the interim report ahead of Cridland’s final report, which is expected before May 2017.
“The future of the state pension age is a hugely important issue for this country,” Cridland said. “It must be fair and sustainable, and reflect changes in society. My interim report provides an insight into my developing thinking and poses a number of questions.”
“Whatever recommendations I decide to make in my final report, they will be underpinned by the importance of effective communications about the State Pension age.”
The former Confederation of British Industry (CBI) director general added: “People need to be able to plan effectively for their own retirement.”
Fidelity International head of pensions policy Richard Parkin said the report demonstrated huge variations in people’s needs and experiences but also raised “more questions than it answers”.
He added: “It’s clear the resolution goes beyond pulling the rather crude levers of increasing the State Pension Age or reducing benefits. We need to work out how we can make sure people get the value of their lifetime of hard work to enjoy a decent standard of living when they need it.
“There are huge practical issues to this but it feels like a single approach for all is no longer tenable and will become even less so as time goes on.”
Addressing gender inequality
The review also shed light on inequality between men and women, as it emerged that, across all current working age groups, men on average enjoy 25% higher retirement income than women in their first year, equating to approximately £3,000 more per year.
Consistently higher earnings by men, and women taking time out of the labour market, were identified as the key factors here.
With men and women across all generations set to receive similar amounts of State Pension, the review identified the discrepancy in pension outcomes reflected different private pension outcomes.
It noted: “On average across all generations, it is projected that just under 30% of women’s total pension is made up of private pension, compared to just over 40% of men’s.”
Wth Cridland’s final report expected before May 2017, Aegon head of pensions Kate Smith has warned the government against “rushing through changes” and said Cridland “has his work cut out”.
She said: “Today’s report gives us a clear insight into the direction on Cridland’s thinking where he sets out affordability, fairness and ‘fuller working lives’ as his three key pillars, which will no doubt inform the consultation he has launched.
“Cridland has his work cut out to address these complex challenges and we would caution against rushing through changes. We’ve seen how rapid changes to women’s state pension age have left many women approaching retirement with insufficient time to prepare.”
Cridland was appointed the government’s independent reviewer of the state pension age in March. The purpose of his review of the state pension age is to report recommendations to the secretary of state for work and pensions.
Earlier this week, Hargreaves Lansdown called for the state pension age to be brought forward for those in poor health. The firm’s head of retirement policy Tom McPhail said people with a lower life expectancy should be able to cash in their pot, as early as 60 years old, for a lump sum to purchase an annuity on the basis it would return them a higher income through an annuity specialist.
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