For anyone born after 1961, all bets are now off when it comes to state pensions. A government-backed review of the current system has proposed sweeping changes, including a more rapid increase in the state-pension age and an option for retirees to take reduced benefits early.
Under existing rules, the age at which both men and women may begin drawing their state pensions is set to rise to 66 by October 2020, increasing incrementally to 68 by 2044. But this process is too slow, given the rate at which life expectancy is rising and the cost of providing pension benefits, warns John Cridland, the former Confederation of British Industry director-general, who is now leading a review of state pensions.
Cridland thinks the current timetable should be maintained until 2028, when the state pension age will reach 67, but should then be accelerated. That could mean anyone born after 1961 has to wait longer than expected to become eligible for their state pension.
At the same time, Cridland has also proposed a more flexible system that reflects changing work patterns. Many people now retire gradually, he points out, by cutting down on hours or switching to self-employed work as they get closer to retirement age, but then continuing to do some work later on.
One option would be to allow people to begin drawing their state pension before reaching state-pension age if they agreed to accept a lower payment for the rest of their lives. Cridland also suggests that there is a case for people with the longest records of national insurance contributions, such as those who started work at the age of 16, to be able to begin drawing their pensions earlier.
The first of these two proposals would mirror current rules under which people who defer taking their state pension beyond retirement age receive a higher income when they eventually claim. People who opt for a smaller, earlier pension would have to analyse whether they were likely to receive more in total over their lifetime. But the flexibility could be useful for people in ill-health, or those with other sources of income to supplement their reduced pension.