State pension: public have eagle eye for unfairness

interactive investor comments on the Phoenix Group’s report.

interactive investor comments on Phoenix Group’s report and recommendations for the state pension.

Today’s report finds that the public are concerned that future state pension changes should be fair and maintain the social contract between the generations.

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The report recommends that there needs to be wide-scale public debate before future changes to the state pension, for example a Citizens’ assembly or an independent pension commission.

Other recommendations include linking the state pension age to life expectancies, rather than GDP as recommended in the Neville Rolfe review; working to increase uptake in Pension Credit; creating a £300 million fund to support and train older workers; improving coverage of auto-enrolment; increasing help available to those with terminal illnesses or those one year from state pension age.

Alice Guy, Head of Pensions and Savings, interactive investor says: “People might not know the intricate detail of the state pension system, but they can spot unfairness when they see it. Many people see the state pension as a reward for years paying into the system, and they have an eagle eye for generational unfairness.

“Moving the goalposts by gradually upping the state pension age means that younger people will get less out of the system than older workers. That’s potentially OK if life expectancies are going up, but not if the state pension gets linked to something that’s seen as random and unrelated to pensions such as GDP.

“Policymakers should be wary of linking the state pension to GDP in the future, something that’s arbitrary and bears no link to people's contributions or the length of time they might be drawing on the state pension. Instead, those interviewed preferred the option of linking the state pension to life expectancy, something directly linked to how long they will draw the state pension.

“It’s imperative that policymakers work together to restore trust in the state pension system and make sure they take time to build consensus around future changes and explain why they are fair. People need certainty to be able to plan for retirement and parties need to work together so that state pension policy is built on the rock rather than shifting sands of political expediency.

“The state pension has become a political football and it’s ordinary workers who are suffering, unable to plan or know how much to save for retirement.

“The problem for policymakers is that rising life expectancies don’t mean people can work for longer. And anyone who thought raising the state pension age would encourage people to work for longer has been proved dramatically wrong. Instead, it’s meant that people in their mid-60s are one of the poorest groups in society, often neither working nor receiving the state pension.

“Many people still face age discrimination in the workplace or are struggling with ill health and can’t manage working any longer.

“The elephant in the room is that so many people are completely reliant on the state pension. We need to work harder as an industry to highlight the benefits of regular pension saving. Even small amounts add up over time and having even a small pension means that workers can boost the state pension with their own pension income.”