NAPF Update

Securing the future of pensions

More breathing space needed for pensions age rises

Our society is getting older and living longer, and a rise in the age at which the state pension starts being paid is inevitable.

Labour made plans to accelerate the rise in the pensionable age, and the coalition government is looking to speed things up further. The latest proposal is that by 2016, or even a year earlier according to some news reports, the state pension age (SPA) for men will reach 66.

We think that's too soon. The government has to give people more time to adapt to change, or it will be accused of unfairly shifting the goalposts – a charge that is too often made when it comes to pensions and retirement.

Many people in their mid to late 50s who have already made retirement plans may be recalibrate to change their savings and private pensions to cover the loss of a year's state pension. People in that age group who have already fully or partly retired could be particularly hit. Six years is not enough.

It has been estimated by the Pensions Policy Institute (PPI) that single pensioners need at least £6,200 a year to meet a minimum standard of living. To ensure that all individuals have at least this amount in extra savings, they will need at least ten years' notice. In our view the proposal to give men only a six year notice period to prepare for the increase in SPA is too short, and we believe there should be no change in the male SPA before 2020.

Instead, the pensionable age should increase to 66 by 2020 for both men and women, giving more leeway for those approaching retirement to boost their savings, That will give people at least ten years to plan, and will protect people in their mid and late 50s.

We outlined these views in our recent response to Government consultation on the SPA.

That paper said that having a unified start date for both sexes would also combat fears about gender inequality as, under the current plans, men would start retiring at 66 - some four years earlier than women. Gender discrimination is a big issue in the workplace, and a number of employers have told the NAPF that they are very unsettled about the workplace equality implications of such a move.

And if the Government wants to stretch the pensionable age then it has to do a lot more to help older people stay in work, including tackling issues such as health inequalities and employment practices.

The debate around SPA shouldn't deflect from the question of what sort of pension people will actually get. There must be a trade off if people are being made to work longer, and our proposals for a Foundation Pension would see the state pension increase to £8,000pa.

Our research shows that people are indeed willing to work longer if they know that, in exchange, they will receive a more generous state pension. 57% of respondents said they would be willing to work an extra 2 years in exchange for the more generous Foundation Pension. Younger people were most likely to be prepared to work the extra years, but even amongst those closest to retirement (55-64), 58% said they would be prepared to work longer in return for a higher state pension.

There should be a bit of give-and-take on this issue, and while the SPA will rise, we also look to the government to improve the state pension, which is one of the worst in Europe.

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Editor of NAPF Update: Paul Platt Tel: 020 7601 1717 or e-mail: paul.platt@napf.co.uk

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