In summary, the PPI explores four reform proposals:
- Allowing anyone with 45 years’ National Insurance contributions to access their state pension early, at the full rate. The PPI estimates this would cost around £250m in 2020;
- Freezing the Pension Credit age at 65 to help those on low incomes (currently the Pension Credit age is linked to the state pension age);
- Allow early state pension access for all, but at a reduced rate;
- Allow unreduced early access to the state pension for specific groups (the disabled and those with care responsibilities)
AJ Bell senior analyst Tom Selby says: “The Government must tackle inequality in the state pension system head on. There are no easy answers here, but that should not stop policymakers from pursuing changes that can help the most vulnerable in society.
“All four reforms highlighted in the PPI paper merit serious consideration. Allowing early access for those who have paid into the system for 45 years, for example, is a simple change that should benefit those who work in more manual jobs and may therefore have a lower life expectancy.
“Equally, allowing early state pension access at a reduced rate would be a relatively straightforward reform that would bring the state system into line with the pension freedoms, potentially at zero cost to the taxpayer. However, the Government may be wary of the implications this would have on Government finances if large numbers of people demanded their state pension early.
“The Government must only pursue reforms that do not add unnecessary complexity - the old system of means testing created arguably the most complicated state pension system in the world. Maintaining a simple state system is crucial to supporting automatic enrolment and the wider private pension system.”