Interactive Investor

Government bats away calls for lower state pension age

3rd August 2021 13:29

Alex Sebastian from interactive investor

A petition calling for the state pension age to be lowered from the current 66 years old has been given a cold reception by the DWP.

The Department for Work and Pensions has dismissed calls for the state pension age to be lowered.

In response to a petition asking for the age at which payments begin to be cut to 60, the DWP said such a move would be neither affordable nor fair.

Proponents of such a change argue it would benefit young people if state pensions began at an earlier age because it would free up job opportunities.

They say that the pandemic has reduced employment opportunities for young people much more than older generations, and such a move could help tackle this. The petition drew around 68,000 signatures.

The state pension age was increased to 66 for both men and women last year, and is expected to rise to 68 in the coming years.

The DWP said: “Parliament has voted to equalise the state pension age and subsequent retirement ages for men and women. Reducing it to 60 is neither affordable nor fair to taxpayers and future generations.”

“The state pension is funded through the tax contributions of the current working-age population,” it added. “Reducing the age to 60 would therefore increase the tax burden of the current working-age population.”

The call for a lower state pension age would seem to run contrary to the economic realities faced by the country in the wake of the pandemic.

With fewer children being born and people living much longer on average, funding of the state pension gets increasingly expensive over time and there are fewer new taxpayers joining the pool to pay for it.

Last week, Bank of England official Gertjan Vlieghe focused on this matter in his final speech as a monetary policy committee (MPC) member.

He argued that the pension age should in fact rise to preserve the central bank’s ability to stimulate the economy.

Having too many people approaching retirement can blunt the monetary tools the central bank uses to fight off a downturn, he argued.

Becky O’Connor, head of pensions and savings at interactive investor, said: “The government’s response suggests this petition is doomed to fail, despite the amount of support it has received.

“It’s a clear cry for help from some of the millions of older workers who have either lost jobs or can’t find new work; have no or very little private pension saving; no longer have a partner’s pension to rely on, or have fallen into ill health and can no longer work for that reason.

“The state pension age can seem like a lifetime away if you are aged 60 with a very small or even no private pension and little hope of finding a job.

“Many older workers lost their jobs during the pandemic – effectively forcing some into early retirement and pushing them towards using any private provision they have earlier than they might have wanted because they are not yet eligible for the state pension,” O’Connor continued.

“It is much harder to find work as someone approaching retirement age than it is if you are 30 years younger.

“However, the chances of the government responding to this perfect storm of difficulties blighting a proportion of older workers with a reduction in the state pension entitlement age after so many successive rises is slim to none.

“It’s already under pressure to can the triple lock guarantee on state pension payment rises because of the cost to taxpayers.

“Reducing the state pension age universally would benefit many older people who do not actually need this help as well. One answer to this would be to means-test the benefit, and that is a whole new can of worms.”

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