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The review of the State Pension Age – will some personalisation be introduced?

Friday 14th October 2016

Written by Martin Upton

The first of the new reviews of the State Pension Age (SPA) is getting underway, led by John Cridland, formerly of the Confederation of British Industry (CBI). The new arrangements require a report to be presented to the government every five years with this first review scheduled for delivery in 2017.
The chief reason for these regular assessments is to ensure that the SPA is linked to changes in longevity. By doing this the cost of state pensions is controlled. Growing longevity in recent decades has meant that the SPA has increased, particularly for women. 
Until a few years ago the SPA was 60 for women and 65 for men. However by 2028, under the current plans, it will be 67 for both men and women, rising to 68 by 2046. This increase has caught out many people, forcing more to work well into their 60s. 
Women, in particular, feel aggrieved not only by the rising SPA but at the poor official communication about this development.
Whilst the forthcoming review will look at the latest trends in longevity before making its recommendations to the government there have already been representations that the SPA should reflect better the working lives and personal circumstances of different groups in the population. 
For example average life expectancy varies across the UK by up to nine years. So is it appropriate to have a single SPA with the result that, on average, those in one region of the country will have more years of state pension than those in another region?
What about those who move into employment at the age of 16 – should they have the same SPA as those who only start work and paying National Insurance Contributions (NICs) after completing higher education in their 20s? Should there be a cut-off point after 50 years of work at which point you are entitled to a state pension? This would mean that those who work from 16 could get their state pension when they reach 66 years of age?
Could those who want to retire before reaching their SPA get a reduced state pension instead in the same way that those taking early retirement under occupational pension schemes get an actuarially reduced annual pension? 
So is it feasible or likely that the SPA will become more personalised in the future? Possibly, but the problem is that these changes are aimed at being fairer to those moving into later life and the likely effects of such a personalisation of the SPA is a higher bill for state pension provision.
We’ll find out about John Cridland’s recommendations next year – but already he has plenty of ideas to consider.
*Martin Upton is Director of the True Potential Centre for the Public Understanding of Finance (True Potential PUFin)

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