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Comment on the Pension review

Cridland’s plan – make everyone worse off

Lindsey RogersonThe task set for John Cridland meant he was never going to make everyone happy. But leaving everyone – workers and pensioners – worse off, that really is something.

He was asked to look at further raises to the UK state pension age, to ensure that they were fair and also to consider if some people should be allowed early access as well.

On this latter point he seems to have concluded that it would be just to hard to work out who was sick or in dire straights enough to be allowed to draw their state pension early.

On the surface, keeping one age for everyone seems fair. But you only have to look at the difference in life expectancy of someone from the Calton area of Glasgow – 67.8 years for men –  and compare that to those of East Dunbartonshire  – 80.5 years – to realise that there are huge regional, not to mention occupational differences in life expectancy, which can not be addressed with a single starting age for the state pension. Indeed, it could be argued that the working poor are funding the  to the state pensions of the most affluent pensioners.

Instead of recommending that government address this issue head-on he has instead proposed that government consider a series of measures to help those who find themselves in ill health before retirement as well as the carers who look after them.

It has to be hoped that having been so recently embarrassed over plans to increase NI contributions for the self-employed without giving access to maternity and other benefits, that the government will not take forward Mr Cridland’s recommendation to bring forward a rise in the state pension age to 68 by seven years with out also bringing in his recommendations to protect those in poor health and their carers.

That said, anyone under 45 – myself included – who didn’t think their retirement age was likely to increase, simply hasn’t been paying attention. The number of people over 65 in the UK is set to rocket by 61% between 2015 and 2045. By then almost one in four people will be aged over 65.

Even with the pension age increase to 67 by 2028 already factored in, the bill for state pensions has been estimated to reach £152 billion (a rise of 39%) by 2028.

Mr Cridland (right) has tried to find inject some intergenerational fairness into his recommendations with his proposal to scape the so-called “triple-lock” after 2020. The triple-lock was introduced in 2010 – it guarantees that the state pension will rise by the highest of three measures: inflation, average earnings or 2.5%. It has added around £1,100 to pension incomes since it was introduced in 2010.

John CridlandThe Tories have promised to retain it until at least 2020 – hence the timing of Mr Cridland’s proposal to replace it with a simple link to average earnings.

There is a lot of evidence to support that notion that pensioner incomes have held up better than those of “average families” since the financial crisis, but this is because of the triple lock. But clearly with a government convinced that austerity is still the right course for the country many – the Work and Pensions Select Committee included – think it is time pensioners got a dose of austerity.

The final group to be left unhappy by today’s announcements – anyone under 30 – can’t blame Cridland for the prospect of being 70 before they can draw a state pension. That suggestions comes for the government actuarial service and is simple maths.

The government has a formula which roughly means that state pension age is set to provide one year of retirement for every two years of working life based on average life expectancy. Average life expectancy is rising and so the starting point for the sate pension age must rise also.

Pensions issues are seldom dealt with well by government – the introduction of auto enrolment being the rare exception. Politicians then to think only as far ahead as the next election so the temptation is always to push difficult decisions off into the future so as not to alienate voters. In making recommendations that potentially leaves everyone a loser, Mr Cridland might actually have delivered a winner. 

Pension review: what you need to know

The three main conclusions of his report are:

Bring forward by seven years the rise in the state retirement age to 68.

End the so-called pensions “triple-lock”

And do not give early access to state pension for those in poor health

 Under 45’s

About 5.4 million workers at present aged under 45  will see the date at which they will receive the state pension pushed back a year. At present the state retirement age is not set to hit 68 until 2044, Mr Cridland suggests raising it seven years earlier in  2037.

Commenting on the recommendation to bring forward the increase in retirement age, Graham Wilder director of external affairs at the Pensions and Lifetime Savings Association said: “We are concerned by the proposal to accelerate the rise of State Pension age to 68. This proposal will hit people in their late 30s and early 40s – the very group who are too young to have benefitted from final salary pensions and too old to benefit from auto enrolment.”

Triple lock

The triple-lock is the principle under which the state pension is guaranteed to rise by the highest of three measures: inflation, average earning or 2.5%. It has added around £1,100 to pension incomes since it was introduced in 2010. The Tory’s have promised to retain the triple-lock until 2020.  Cridland suggests removing the triple-lock after that – and replacing it with a simply link to earnings – as one way to delay bringing forward the move to a the state retirement age of 68.

Early access

Mr Cridland’s year long review was also asked to consider giving people early access to their state pension pot. He has advised against allowing early access to state pension for the sick. Basically this confirms the status quo as there is currently no early access to state pension before statutory retirement age (63 at present for woman and 65 for men). Cridland concluded that it would be too complex to introduce early access for those in poor health.

The government will publish its response today’s report in May.

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