The Committee said that "this arrangement, which features in some defined benefit occupational pension schemes, 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".
The report said:
"We calculated indicative reduced state pension payments to individuals who chose to take their pension early on an actuarially-neutral basis. In simple terms, this means weekly payments are reduced to ensure that, on average, a person receives the same amount total amount of pension over a longer time period. This option is common for workplace pensions."
The Committee said that this would be the most cost-effective option, as opposed to re-calculating all women’s pensions for those born in the 1950s as if they had been born before 1950, which could also "have damaging wider consequences".
However it admitted that there are several questions which would need to be addressed before such an idea could be progressed. The details and limits of eligibility, and the rationale for this relative to those earlier or later, would need to be determined, including the position of men at 65.
It would also bring forward some public spending, as an unknown number of women would take their state pension early.
Additionally, if some women over state pension age on a reduced state pension had total income below the guaranteed minimum and claimed pension credit, there would be some ongoing costs unless eligibility for that means-tested benefit was adjusted. Income tax and NI revenues would be reduced if women chose to take their state pension rather than work, though costs of working age benefit payments such as Jobseeker’s Allowance would fall.
However Alan Higham, a pensions expert, advocated this as a means providing an “entitled income today” to people subject to sharp rises in their state pension age that “would be fiscally neutral over the expected lifetimes of this group”.
The Committee concluded:
"We are long past the stage where an ideal outcome to the necessary process of equalising and increasing the state pension age could be achieved. We are aware both that the Government is operating under severe fiscal constraint and that the original rationale for changes to state pension age was to ensure the fiscal sustainability of the system. The Government has maintained that it is unwilling to devote additional resources to providing transitional arrangements for women affected by the state pension age changes. We have borne this in mind in our assessment of the options available."
Aegon has supported the Committee's recommendation, but is calling for it to be applied more widely to men and women, whether or not their state pension age has recently been increased.
Steven Cameron, Pensions Director at Aegon, said:
“Last year the Chancellor revolutionised retirement choices by offering all those with a private ‘defined contribution’ pension vastly increased flexibility around when and how much they could take from their pension. This pro-choice move has been widely and warmly welcomed. The next logical step would be to offer new flexible choices within the new state pension.
“The improvements we are seeing in life expectancy mean the ‘default’ state pension age will inevitably continue to increase, to avoid placing increasing burdens on those of working age to support state pensioners. But while average life expectancy is increasing, ‘healthy’ life expectancy is much more varied, and working to more advanced ages may not be feasible for all based on health or the challenges of a particular job. This means further increases in state pension age have to be accompanied by flexibility for individuals to decide to take a reduced amount from an earlier age.
“There are knock-on considerations to explore. The Government won’t want to be seen to encourage people to leave the workplace earlier than they need to. Allowing state pensions to be taken earlier also brings forward state pension payouts, for the Chancellor, although over time the terms could be set to make sure this balances out. Implications on entitlements to means tested benefits also need thought through. These points of detail should now be investigated but this shouldn’t stand in the way of what would be a welcome pro-choice policy measure and also a potentially powerful vote winner.”
Tom McPhail, Head of Retirement Policy at Hargreaves Lansdown, added:
“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. 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. Politically this could be quite attractive as it would show the government is listening and is sympathetic, without it actually having to cost any money. This could also pave the way for everyone to have a more flexible state retirement age in due course. There is no reason why the Chancellor could not announce in the Budget tomorrow plans to explore this option further. There would be a short term cost as it would bring forward some public spending so it would be important to look very closely at how the reductions to the state pension rate might be applied. ”
