Chancellor Rachel Reeves has been urged to consider allowing workers to claim their Department for Work and Pensions (DWP) state pension up to three years earlier than the standard pension age, with the trade-off of receiving a slightly reduced annual payment.
Pension provider Aegon advocates this change for individuals nearing retirement, emphasizing that early access would provide greater financial flexibility and help tackle inequalities stemming from varying life expectancies.
Currently, the state pension age is set to increase from 66 to 67 next year, eventually reaching 68 by 2046. Steven Cameron from Aegon highlights the challenges that rising pension ages pose, particularly for those unable to work longer due to health issues, demanding jobs, or caregiving responsibilities. He noted, “We’re already seeing increasing numbers of over-50s exiting the workforce due to ill health.”
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Cameron further explained that a fixed and continually rising pension age risks creating divisions and does not align with the flexible options available in today’s private pension schemes. Additionally, raises in state pension age disproportionately affect individuals with lower life expectancies—often on lower incomes—making delayed pension receipt more punitive for them. “Waiting a year for your pension when you might have only five years left is a much bigger cut than if you have decades ahead,” he added.
Meanwhile, Dr. Suzy Morrissey, deputy director of the Pensions Policy Institute, is overseeing an independent report evaluating the state pension system ahead of the upcoming review. One motivation for raising the pension age is to reduce costs for the Treasury. Although previous governments have attempted to accelerate increases in the state pension age, progress has been limited despite backing from independent reviews.
However, not everyone supports early access with reductions. Former pensions minister Steve Webb, now a partner at consultancy Lane Clark & Peacock, argues that such a policy would be detrimental. He points out that the UK state pension is already low by international standards, and even full payments fall short of covering the estimated income needed for a decent retirement. Webb warns, “If people took their pension early with permanent reductions, many could find themselves living below the poverty line in retirement.”
As debate continues, the government faces the challenge of balancing financial sustainability, fairness, and flexibility in reforming state pension access.