Changing the state pension age could make your pensions crisis even worse!

on Oct 15 in Is it my crisis? , State pension tagged by Brian Wood

News of the pensions crisis has now reached the ears of the politicians, and a debate between the political parties about changing the state pension age is gathering steam.  What are the implications for you?

In the book we describe the “pensions turbocharger”.  For every year that you delay taking a pension, the amount of the pension that you eventually get can rise at a surprisingly high rate.  In the example we use in the book you could increase your pension by 12% for every year you retired later (this will vary according to your own circumstances).  The effect could be even more positive if you are able to earn some money and invest that in an extra pension.

So, on the surface, deferring your pension age looks as if it might have some merit.  But there is a huge catch in what the politicians are now talking about – the government will get the benefit of the pensions turbocharger, not you! In fact, it’s worse than this because you currently have the right to defer your state pension age and receive an increase in your pension that reflects the turbocharger effect. By simply deferring the state pension age for everyone, the effect is that this turbocharger increase will be taken away from you.

We fully accept that a government of whatever party has to cope with the effects of the pensions crisis, and we are pleased that this is becoming a matter for public debate.  As we said in the book, we believe that the old concept of a single date of retirement – where all work suddenly stops and all pensions suddenly start – is now unhelpful and needs to be replaced by a more flexible and constructive approach to the transition.

But changing the state pension age without considering the broader context is not the answer, because it will make your pensions crisis worse than it already is by reducing the amount of pension you will receive from the state.

There does need to be a national debate about the pensions crisis and state pensions, but it shouldn’t just be about saving the government money at your expense.  At the very least it also needs to take into account:

  • the money wasted on disincentives for low earners to pay for their own pensions;
  • employment law that forces people to retire at a fixed age;
  • practical issues like whether people really do want to work for longer -and whether they are able to;
  • actually helping you to take control of your future rather than just making your crisis worse.

So as you can see, this debate isn’t a simple technical one.  It is a huge debate that will affect everyone in some shape or form.  We are keen to hear what you think – do let us know!

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