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The state pension is the foundation for many people’s retirement income and helps to protect people from falling into poverty in old age. It has changed considerably over the last 75 years in response to societal and public needs, with the most recent reforms introduced in April 2016 designed to simplify the system.
Today, the state pension is at a critical juncture, facing questions over affordability and intergenerational fairness in the context of an ageing population and increasing longevity.
Along with the Policy Institute at King’s College London, Phoenix Insights has carried out a year-long study working with the public to understand views and expectations of the state pension and present policy recommendations make the system both fair and sustainable, and support people at risk of missing out as the state pension age rises.
The state pension age is rising in line with increases to longevity. The current state pension age is 66, but under current legislation it will increase to 67 from 2026 and 68 from 2044. However, the increase to 68 might be brought forward depending on a further review which is due to take place within two years of the next parliament. Given the fundamental role of the state pension to people’s retirement living standards, it is important the public understands the issues, and are involved in proper discussions about the its future before decisions are made.
The state pension is part of an intergenerational social contract, but our research shows that not everyone knows what they have signed up to, and many others are worried that the deal might not look so good when it is their turn to benefit.
We found high levels of misconceptions about the state pension, such as beliefs that everyone has their own ‘pot’ of national insurance and a lack of understanding of what is needed to get the full state pension. It is important for the public to understand the policy, but equally it is essential for policy makers and politicians to understand the public. People expect the state pension to provide the basics, either to give you a minimum to live on in retirement or to act as a building block for your own savings. We need any future reviews to fully involve the public and take people’s expectations.
A strong message from our deliberative work was the public’s desire for changes to the state pension system to ensure it continues to serve its role as part of a social contract into the 21st century effectively, fairly and with trust. While some changes should be considered in the next state pension age review, we believe there are policy reforms which could be introduced now to make a real difference.
The next state pension age review should include public deliberation and engagement to create buy in and trust in the system. Long- term decisions should be scrutinised by an independent body like a new Pension Commission.
The state pension should remain non-means tested and linked to average life expectancy, but it requires supplemental support in the wider social security system to help people manage changes. The next state pension age review should combine both a review of age as well as the uprating system.
Increase uptake of Pension Credit for those eligible through targeted local level outreach and uprate it in line with the state pension triple lock. Introduce bridging benefits through Universal Credit equivalent to Pension Credit for people at risk of poverty one year before their state pension age. Allow early access to a pro-rated payment equivalent to state pension for adults of any age with a terminal illness.
Create a £300m Sustainable Work Fund to engage and support employers and workers, to create opportunities for better, healthier and more sustainable working lives for all ages, through a major boost to lifelong learning, interventions such as mid-life MOTs, workplace health and careers advice.
Improve the coverage and effectiveness of Automatic Enrolment to help people to save more for their retirement alongside the state pension system.
Whenever state pension age increases, invest the equivalent of 20% of the fiscal savings to create opportunities for better work and help those most in need to bridge the transition to higher state pension ages.
Joining Patrick Thomson, Head of Research Analysis and Policy at Phoenix Insights to discuss the future of the state pension were:
