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MPs back early access for women hit by pension age rises
Women born in the 1950s could be given access to a reduced state pension at an earlier date to make up for state pension age rises.
by Michelle McGagh on Mar 15, 2016 at 14:18
MPs have recommended women affected by increasing retirement ages be allowed to withdraw their state pension early at a reduced rate.
The Work and Pensions Select Committee, led by Labour MP Frank Field, has concluded that women born after 1951 need help to access their state pension early after their state pension age increased twice in quick succession.
The first rise was in 1995 and saw the pension age for women increased from 60 to 65, in line with men. It was then increased from 65 to 66 under the Conservative and Liberal Democrat coalition government in 2011 as it pegged the state pension age to longevity.
The campaign group formed by women affected – known as Women Against State Pension Inequality (Waspi) – originally called on the government to return them to ‘exactly the same financial position' they would have been in if they had been born on or before 5 April 1951. However, latterly it called on the government to make ‘fair transitional arrangements for all women born on or after 6 April 1951 who have unfairly borne the burden of the increase to the state pension age’.
The committee has rejected the idea of returning women to the position they would have been in prior to the 1995 changes, calling it an ‘ill-targeted and prohibitively expensive policy’.
It also said postponing state pension age rises would be too expensive. ‘Extending the timetable for increases in the state pension age or widening eligibility for pension credit would be prohibitively expensive and could have significant unintended consequences,’ said the committee’s report.
‘We are long past the state where an ideal outcome to the necessary process of equalising and increasing the state pension age could be achieved.’
It said the government faced ‘severe fiscal constraint’ and the fact that it had maintained there would be no additional resources for a transitional arrangement to be put in place, meant the committee had to find a cost neutral solution for the Waspi women.
Smaller pension earlier
One solution is early access to the state pension at a reduced rate. ‘We are interested in an idea that was proposed of permitting early retirement, from a specified age and for a defined cohort of women, on an actuarially neutral basis,’ said the committee.
‘This arrangement…would permit women in that specified age group to choose to take a state pension sooner than scheduled in return for lower weekly payments for the duration of their retirements.’
Early access would take into account when the woman was scheduled to retire and how much they would receive over their lifetime in state pension and then adjust the weekly payment to be taken earlier.
For example, a woman born on 6 January 1955 is scheduled to draw her state pension on 6 January 2021, aged 66, qualifying for a full new state pension of £155.65 a week. If she takes her stake pension nine months earlier on 6 April 2020 then she would receive a pension of £149.58 per week in 2016/17.
Tom McPhail, head of retirement policy at Hargreaves Lansdown, said the proposal from the committee was an effective compromise.
‘The clock is ticking, with more women passing their originally expected state pension age every day, so if the government is going to act, it should do so as quickly as possible,’ he said.
‘This would be an effective compromise, allowing those women who have been affected by the increase in state pension age the option to draw on their state pension at the time they originally expected, albeit at a reduced rate.’
Plans could hit problems
However, Malcolm Mclean, pension expert at Barnett Waddingham, said allowing early access ‘isn’t as simple as people think’.
The complexity is due to the availability of pension credit, a means-tested state pension top up that is paid to those whose state pension is less than £151.20 a week (or £230.85 for a couple).
‘For the Waspi women the government is not going to let them draw the pension early [at a reduced rate] and then top it back up with pension credit,’ he said, adding that allowing the women to claim pension credit would bump up the benefits bill. ‘It goes against the principles of means-tested benefits.’
Mclean is also concerned about the rate at which the state pension would be reduced if it was taken early and that the women would be pushed into poverty if unable to claim the means-tested benefits.
Currently those who defer taking their state pension are rewarded with a 5.8% increase in their weekly payments for each year they don’t draw the pension.
‘The reduction [for taking a pension early] will be savage,’ said Mclean. ‘It’s the converse of what happens if you delay taking your state pension now, you get a 5.8% per annum increase. The other way – a 5.8% reduction – would mean a woman taking her state pension at 62, three years early would be looking at a 17% reduction.’
Mclean is not the only person with doubts about early access. Citywire Money's sister trade publication New Model Adviser® reported that the Department for Work and Pensions (DWP) was concerned there would still be a cost to early access.
In analysis obtained through a Freedom of Information request, the DWP said: 'While this option has not been costed, even if a lower pension rate was actuarially calculated (on state pension received), this option would impact on other state expenditure and receipts.'
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