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Cridland recommendations ‘unavoidable’

Jon Greer, pensions expert at Old Mutual Wealth considers the proposals and potential ramifications of the Cridland report

The state pension age review adds further evidence to the inescapable statement of recent years: the current pension system is unsustainable.

The report’s recommendation to increase and speed up the state pension age will come as a blow to 30 and 40 year olds who will see their working lives stretch further in front of them. Increases in the state pension age came from both John Cridland and the Government’s Actuary Department, and while the latter’s recommendation of moving the SPA to 70 seems a bit severe, the move appears unavoidable.

The old age dependency ratio shows there are approximately just over 3.5 working age people for each person above State Pension Age, by 2039 this is projected to fall to approximately 2.7. To maintain the current state pension age the government would have to consider increasing taxation or reduce the amount of the state pension, neither of which are palatable.

While the average life-expectancy is increasing, people’s abilities in later life can be drastically different and these needs to be taken into account. Concessions will need to be made as some people may not be physically or mentally capable to work till these later ages. Cridland’s recommendation of means-tested support for people who are unable to work because they are ill or caring for someone and allowing them some early access to pension income seems a sensible suggestion.

However, for many people a longer working life was already expected. Our recent research* shows people are increasingly using temporary and flexible work as a way to fund their retirement. 30% of those surveyed expect to have a job to help fund their future retirement income.

Ultimately, people need to take responsibility for their own retirement and plan ahead. The call for people to have access to a mid-life MOT to help plan their later years is an interesting idea, but the government will need to ensure that it is properly publicised and does not become one of those benefits that people remain blissfully unaware of.

The Cridland report also recommends scrapping the triple lock. The triple lock was a good policy, and its positive impact should not be forgotten. It was part of a package that meant a person’s state pension started later, but was a decent amount. The issue is that regardless of what happens to people’s earnings or the state economy the state pension has the potential to ratchet up by at least 2.5%. Replacing the triple lock with an earnings link would make sure the State Pension maintains its value, but without the ratchet effect. In times when earnings fall behind price inflation, an above earnings increase could kick in until real earnings growth resumes.

*Survey of over 1,500 50-75 year olds conducted on our behalf by YouGov

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