We are interested in your comments on the report published by the Centre for Policy Studies in November this year.
The report purports that:
‘The State Pension is No longer Fit for Purpose’
‘The State Pension is facing fiscal calamity. Total spending on it has increased by 25% since 2010/11.'
In summary, the report explains that in the last year, the National Insurance Fund (NIF), which funds the State Pension, received £84 billion in NICs, but paid out £92 billion in benefits (including £86 billion as the State Pension): it required bailing out by a £4.6 billion Treasury grant.
Furthermore, due to the diversity in UK life expectancy, a universal State Pension age (SPA) is increasingly unjust.
For example, on average Tottenham Green man’s return on his NICs, in the form of his State Pension, is only about a quarter of that of Chelsea man’s. This is terrible value for money for those who can least afford it.
Michael Johnson, author of the report, urges the Government to take action by putting the State Pension into “run-off” and replacing it with a Workplace ISA and a new residency-based Senior Citizens’ Pension (SCP).
“Run off”
The State Pension should be put into “run-off”, so that, from 2020, no further “entitlements” would be created. Past “entitlements” would be honoured, as the legacy State Pension, which should be means-tested, along with the whole range of other pensioner benefits.
Senior Citizen’s Pension (SCP)
A residency-based Senior Citizens’ Pension (SCP) should be introduced, payable from the age of 80. All non-pensioners in 2020 would be eligible for it, thus the first payments would be made in 2034. Perhaps set at £200 per week, it would be 30% larger than today’s full State Pension.
Workplace ISA
The SCP should be complemented by a Workplace ISA, to accommodate employer contributions made under automatic enrolment (AE). This would be significantly pre-funded by the State via a 50% bonus, up to a modest annual cap, with no access to assets permitted until 65. The 15-year period until receipt of the SCP invites structured draw down or annuitisation. Thereafter, the SCP would socialise longevity risk across the nation. There is an opportunity to introduce the Workplace ISA in the 2017 review of AE.
The full report is available here.
What ever the future of the State Pension, it is wise to plan for your own retirement and if you would like to speak to one of our pension specialists, please either email, call or click the chat button on the web site to start a conversation.
