Following months of campaigns and protests, MPs have launched an inquiry into a proposal to ease the impact on women most affected by the state pension age rising to match the state pension age for men. The investigation, conducted by the Work and Pensions Select Committee, will analyse the long- and short-term economic impact of allowing certain women to draw their state pension early.
Last week the Committee published a report urging the government to look at allowing women affected by the state pension age changes to take early retirement on an "actuarially neutral basis". That sounds complicated but, in essence, it simply means that the women affected could choose to take their state pension early, in return for receiving lower weekly payments for the duration of their retirement. That would ensure that, on average, the government wouldn't find itself saddled with any extra pension costs.
The Committee, led by Labour MP Frank Field, seeks to answer a host of questions about the proposal. What would the long- and short-term fiscal impact of the scheme be? How could the scheme interact with pension credit and other benefits? How much would it cost? Who should be eligible? And what impact would it have? The government is hardly rolling in spare cash but given its current travails, it will be wary of appearing unsympathetic. "Perhaps the recent change in personnel at the DWP will open up the possibility of a more accommodating response from the government," commented Tom McPhail, who heads up retirement policy at Hargreaves Lansdown.
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If the proposal did go ahead, it would mainly affect women born in the 1950s. A plan to increase women's retirement age to 65 has been in the pipeline since 1995, but in 2011 the government fast-tracked the latter part of the timetable, leaving some women unable to access their state pensions as early as they had planned. We suspect that for most it will still end up making more sense financially to wait where possible but we'll see the government's response first.
n In his resignation letter this week, Iain Duncan Smith claimed that the government's cuts should have targeted "some of the benefits given to better-off pensioners" rather than the disabled. However, George Osborne has ruled out a cut in state pensions to compensate for his U-turn on personal independence payments (see page 18). Instead, the government will "go on giving people who have worked hard all their lives a decent, generous basic state pension that we committed to in our manifesto".
However, this "political refusal to touch pensions, or pensioner benefits" has "protected the single biggest cost in the welfare budget", says the BBC's Michael Buchanan. The government argues that "pensioners deserve to be protected, given they have worked for their rewards and that most have no other options to earn income if they cut their benefits". Yet the "triple lock", which means that pensions automatically rise by the greater of inflation, earnings or 2.5%, "has now created budgetary mayhem".
We shouldn't be so quick to complain about a decent state pension particularly the young, says Steve Johnson in the Financial Times. Firstly, it "would be unrealistic to think pensioners will be left to fend entirely for themselves". But secondly, given that the current level of the state pension is £8,100, "millennials may only need to generate an additional income of £7,700 a year to enjoy the same standard of living in retirement as in work". Although many will want a more comfy retirement, this more modest sum would be achievable by setting aside "a little over £200 a month".
Natalie joined MoneyWeek in March 2015. Prior to that she worked as a reporter for The Lawyer, and a researcher/writer for legal careers publication the Chambers Student Guide.
She has an undergraduate degree in Politics with Media from the University of East Anglia, and a Master’s degree in International Conflict Studies from King’s College, London.
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