Is this the solution to the women's state pension age issue?

Chris Torney / 30 March 2016 ( 05 April 2016 )

Could this proposal be a cost neutral way of easing the transition to a later state pension age for thousands of women?

MPs want the Government to consider allowing thousands of older women to access their state pensions early in a bid to smooth the transition to later retirement ages.

Over the course of this decade, women’s state pension age (SPA) will rise from 60 to 66, with men’s increasing from 65 to 66 between 2018 and 2020.

The story so far: Read about the women's state pension age debate.

Fight for better treatment

Over the past 12 months, a campaign group called WASPI – which stands for Women Against State Pension Inequality – has been fighting to make the change fairer. 

WASPI says that many of the hundreds of thousands of women affected by the move to a later SPA were not aware that they would have to wait longer until they started receiving their pensions.

The Government says that changes to the SPA – the result of two pieces of legislation, the first passed in 1995 and the second in 2011 – were widely publicised and most women should therefore have known about the reforms. 

As such, ministers have repeatedly refused to bow to campaigners’ demands for a “fairer transition”.

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Proposed early access

However, MPs on the Work and Pensions Select Committee have now announced an inquiry into proposals that could see many of the affected women given the chance to start taking their state pensions months or even years earlier, albeit at a reduced rate.

The committee is calling on the Government to explore the possibility of allowing women who have been affected by SPA changes to take early retirement on an “actuarially neutral basis”. 

In practice, this would mean they will not receive more money in total over the course of their retirement than if they wait until their true SPA.

The committee said: “This would mean some women could choose to take a state pension sooner than scheduled, in return for lower weekly payments for the duration of their retirements. The ‘reduction factor’ used should ensure that, on average, over the lifetimes of the pensioners concerned, there would be no additional pension costs to the exchequer.”

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Share your views

The committee is now calling for submissions from interested parties – such as campaigners, ministers, civil servants and the pensions industry – regarding the potential impact of such a policy. 

MPs are keen to know who would be eligible for the scheme, as well as how popular and how beneficial it is likely to be.

One of the main criticisms of the Government’s changes in SPA concerns how little time certain women have been given to plan their finances. Although a law to increase women’s SPA from 60 to 65 by 2020 was passed in 1995, the decision to accelerate this process to reach 66 by the end of the decade was only taken five years ago.

Many of those affected by the 2011 legislation say they have not had sufficient opportunity to change their financial plans to cope. Allowing slightly earlier access to the state pension may help those in this position.

WASPI members targeted by Facebook scam. 

How early access might work

What the Work and Pensions Select Committee is suggesting is the option for some people to start receiving weekly state pension payments before SPA. But these weekly payments will be permanently lower than they would have been had the individual waited until SPA to draw their pension.

At present the basic state pension is £119.30 for people who reached SPA before 6 April 2016. Those who reached SPA on or after this date. qualify for the new flat-rate pension worth up to £155.65 a week.

Under the early-access proposals, a woman who was due to reach SPA in March 2019 at the age of 65 years and two months might be eligible for the full £155.65 a week (plus any inflation-linked increases applied over the next three years).

If instead she chose to start taking her state pension in March 2018, she would get a lower weekly payment for the rest of her retirement. Based on current actuarial rates, this could be between £10 and £20 less per week.

Browse our pensions articles.

The Government already offers people the choice of deferring their state pension: for those who reached SPA before April 6 this year, delaying pension payments by a year produces a 10.4% increase in future weekly pension income. But the size of the uplift has fallen for those who reach SPA on or after 6 April, the increase resulting from a one-year delay will be just 5.8%.

There has, so far, been no official Government response to the select committee’s proposals on early access, but the fact that they are designed to be cost-neutral means they are likely to be significantly more attractive to the Treasury than other proposals put forward by WASPI and its supporters. For example, delaying the rise in SPA or allowing some of the women affected by the current changes to revert to an SPA of 60 would probably cost the government billions of pounds.

Click here for more details of the Work and Pensions Select Committee proposals and to submit your views by the cut-off point of 10 April 2016.

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