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

michaels · 6 October 2019 at 5:42PM

So with private pensions there is a degree of flexibility.

DC pots can be realised from 55 (SPA minus 10 in future) and most DBs can be taken early with an appropriate actuarial adjustment.

What would be the drawback of allowing the same with the State Pension? It would obviously not cost the taxpayer any money if the correct deduction/augmentation was applied but it would allow people more flexibility in deciding to take it earlier or later than the standard age as suited their circumstances.

One immediate objection might be pension credit increasing for those who took early and thus had less but assuming this could be addressed (perhaps the flexibility would only be granted to those who would not qualify for pension credit) then I can't see any downside.

Thoughts?

Davy_Jones_II · 6 October 2019 at 5:47PM

I think that a great many people would take it as soon as they could, then later the papers would be full of sad stories about them living off dog food and the state would have to introduce a new top-up to compensate the !!!!less at the expense of the prudent.

So no.

Sibbers123 · 6 October 2019 at 6:08PM

You can't see a downside, I can't see an upside for the taxpayer.

As Davy Jones said, you'll get individuals taking as much as they can, going on lavish holidays, coming back and complaining the have been let down by the government.

michaels · 6 October 2019 at 7:00PM

So basically the pension credit issue - that the govt would have to top up to some minimum acceptable level so there would be extra cost. Is the current pension credit top up level the same as the state pension and is this link planned to be maintained? If so this would only work for those who had additional pension entitlement which would no doubt be seen as unfair to those who don't.

Silvertabby · 6 October 2019 at 7:05PM

michaels - in a nutshell. Only those of us with additional pension/other income would be able to take a reduced State pension early, whilst those with nothing but the State pension wouldn't be able to take an actuarial reduction that would take them below the minimum income guarantee at SPA (being just a £ or 2 below the full single tier pension).

OldBeanz · 6 October 2019 at 7:40PM

While having empathy with the staff of Thomas Cook, some were claiming they were using food banks on their pay day. Some people will always live on the edge and the tax payer picks up the bill.

michaels · 6 October 2019 at 8:06PM

Silvertabby wrote: »

michaels - in a nutshell. Only those of us with additional pension/other income would be able to take a reduced State pension early, whilst those with nothing but the State pension wouldn't be able to take an actuarial reduction that would take them below the minimum income guarantee at SPA (being just a £ or 2 below the full single tier pension).

But with auto enrolment won't the vast majority have additional pension income going forward?

kangoora · 6 October 2019 at 8:09PM

The american social security system works on this principle with people drawing around 70% of maximum benefit from age 62 - but the american governemnt would be more inclined to say 'Tough, your decision' if anyone comes back bleating they can't afford retirement after taking it early.

Silvertabby · 6 October 2019 at 9:02PM

michaels wrote: »

But with auto enrolment won't the vast majority have additional pension income going forward?

Not if they cash it in at 55.

Silvertabby · 6 October 2019 at 9:04PM

kangoora wrote: »

The american social security system works on this principle with people drawing around 70% of maximum benefit from age 62 - but the american governemnt would be more inclined to say 'Tough, your decision' if anyone comes back bleating they can't afford retirement after taking it early.

We'd have to abolish the minimum income guarantee at SPA to do that.

hugheskevi · 6 October 2019 at 9:16PM

As well as Pension Credit, there is also Housing Benefit and Council Tax Benefit which many pensioners will receive. Much has been made about the new State Pension dramatically reducing the number claiming means-tested Pension Credit, but the impact on the proportion claiming any means-tested benefit is much less significant.

Many means-tested benefit recipeints are older, single pensioners (ie often after a spouse has died). It is surprising just how many people will receive means-tested pension benefits at some point during their retirement (unfortunately focus tends to be put on proportion receiving means-tested benefits at a single point in time).

Those with no private pension wealth presumably would be ineligible due to the inevitability of means-testing.

If someone has Defined Contribution pension wealth (as most will have in the future), pension freedoms give them flexibility to take their pension as they wish, so there is no need for State Pension to be offered earlier - they can just draw down more of their DC pension.

So permitting early access to State Pension would be of most benefit to those with a large Defined Benefit pension they do not wish to access early due to the reduction to their pension. I doubt this is a group that will be deemed sufficiently needy as to justify additional complexity and expense of offering State Pension early.

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

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