Would allowing State Pension to be drawn flexibly (with an actuarial reduction) make sense?

antrobus

pensionpawn wrote: »

What about the uncertainty then caused by deferrals and the system then having to find larger payments? Consider this, 5 friends are eligible to claim their state pension in the same month. If they all claimed their SP at 65 by their 68th birthday they will have in total been paid 15 years worth of SP. However one decides to claim 90% from 63, one 95% from 64, one 100% at 65, one 105% at 66 and the last friend 110% at 67. By their 68th birthday the state will have paid out 14.5 years worth of SP. The state is better off. Perform the analysis over a ten year period and the state still pays less.

Mmm.

If the SP is £10,000, and it is claimed it at age 65,in the year 2022, then the state will pay out a £150,000 over the next fifteen years until the year 2037.

If the SP is £10,000, and 90% is claimed it at age 63 ,in the year 2020, then the state will pay out a £153,000 over the next seventeen years until the year 2037.

I think that means the state would pay more. But what do I know? I'd leave it to the government actuary to work out.

Or better still, kick the whole crazy mad idea straight into the Mariana trench where it belongs, and not spend £billions on a major software upgrade to the state pension system, and another small army of civil servants to administer all this tomfoolery.:)

pensionpawn

Thrugelmir wrote: »

Have you factored in annual increases plus cost of funding?

Nope. I just trying to suggest this method is probably fairer than asking people to pay 35 years and continue to move the goalposts.

pensionpawn

antrobus wrote: »

Mmm.

If the SP is £10,000, and it is claimed it at age 65,in the year 2022, then the state will pay out a £150,000 over the next fifteen years until the year 2037.

If the SP is £10,000, and 90% is claimed it at age 63 ,in the year 2020, then the state will pay out a £153,000 over the next seventeen years until the year 2037.

I think that means the state would pay more. But what do I know? I'd leave it to the government actuary to work out.

Or better still, kick the whole crazy mad idea straight into the Mariana trench where it belongs, and not spend £billions on a major software upgrade to the state pension system, and another small army of civil servants to administer all this tomfoolery.:)

....and some people may continue to defer their pension (altering / balancing the calculation...?) I see no need for a new system to manage this as it's just the mirror of an existing scheme. Hey, I'm just trying to suggest a fairer alternative to the all or nothing approach that favours no one as the SP age continues to rise.

hugheskevi

What about the uncertainty then caused by deferrals and the system then having to find larger payments? Consider this, 5 friends are eligible to claim their state pension in the same month. If they all claimed their SP at 65 by their 68th birthday they will have in total been paid 15 years worth of SP. However one decides to claim 90% from 63, one 95% from 64, one 100% at 65, one 105% at 66 and the last friend 110% at 67. By their 68th birthday the state will have paid out 14.5 years worth of SP. The state is better off. Perform the analysis over a ten year period and the state still pays less.

Starting from a position of certainty, ie, at SPA you get your known entitlement, then offering deferral improves public finances. If someone defers their pension, that is less money leaving the Consolidated Fund, and the National Debt is lower.

Obviously there will be higher future costs, but in an unfunded system cash is king, especially when those higher future liabilities do not count against National Debt.

So although deferral adds uncertainty, it is welcome uncertainty in terms of funding. It is uncertainty that can unexpectedly bring forward costs which is unwelcome.

Using your example above, the Treasury position would be why would we want to let 2 people take their pension at at 63 and 64, when we could just start paying them at 65? They would be happy for those deferring and taking it at 66 and 67, as that is less cash out the door in the short-term. A while ago it used to be possible to defer and take a lump sum, but deferring and taking a higher income is more welcome for the Exchequer as the total payment is lower over shorter periods.

It may well be short-termist, but that is the nature of managing an unfunded system. It is probably part of the reason you see things like very poor commutation rates for public service pension lump sums, and schemes have abolished automatic lump sums as they similarly bring forward expenditure.

theoretica

pensionpawn wrote: »

What about the uncertainty then caused by deferrals and the system then having to find larger payments? Consider this, 5 friends are eligible to claim their state pension in the same month. If they all claimed their SP at 65 by their 68th birthday they will have in total been paid 15 years worth of SP. However one decides to claim 90% from 63, one 95% from 64, one 100% at 65, one 105% at 66 and the last friend 110% at 67. By their 68th birthday the state will have paid out 14.5 years worth of SP. The state is better off. Perform the analysis over a ten year period and the state still pays less.

What this calculation does not include is what the people might be doing if they do not draw their pensions early. A proportion would continue in work, possibly paying NI and income tax or more VAT etc thanks to higher income than their (actuarially reduced) pensions. Either increasing total employment or increasing underemployment at younger ages. Either way, this will affect whether the state and country is better off or not.