A think tank wants to scrap the State Pension (Image: Getty)
Advisors want to scrap the State Pension and replace it with a Lifespan Fund as costs from triple lock spiral. The Tony Blair Institute for Global Change (TBI), a policy think tank and advisory group founded by the former PM, proposed the radical overhall that would link your income to your life expectancy.
Three cornerstones of the State Pension would be changed under the Lifespan Fund, including replacing triple lock, giving pensioners flexibility over their payments, and in perhaps the most radical move, putting an end to the State Pension age. “The UK’s state pension is one of the cornerstones of the welfare state. It has served the country well, helping to drive down pensioner poverty by providing a simple, universal income floor in retirement. But it is no longer fit for the future,” the institute said.
“It is becoming increasingly unaffordable, too inflexible for how people live and work, and – as the state pension age rises – increasingly unfair.”
The think tank was founded by former Prime Minister, Tony Blair (Image: Getty)
What would change?
Instead of payments rising each year by either earnings growth, price inflation or 2.5% – known as the triple lock – increases would rise with earnings, which mirrors a proposal made by the Institute for Fiscal Studies.
Brits would also have the option to bring forward some State Pension entitlement during their working life, for example if they are unemployed or retraining. They could rebuild it once they return to work by paying higher contributions.
The TBI said: “Individuals would build credit through work and other recognised activities, draw on it during working life for defined purposes, rebuild it once back in employment, and convert it into a guaranteed pension at retirement.”
The current State Pension age is predicted to keep rising, with some forecasters suggesting future generations will work until they are 70.
However, the Lifespan Fund would allow Brits to choose when they retire, and receive a personalised State Pension payment “calculated on an actuarially fair basis”, using information about their age and health.
Response to the proposals
The proposals followed forecasts from the Office for Budget Responsibility that spending on the State Pension would rise from around 5% of GDP today to 7.8% by 2070, an increase of more than £85billion a year in today’s terms, which is more than the annual defence budget.
The TBI’s main justification on spiralling government costs has not widely been challenged. However, the report received criticism on grounds of fairness.
Tom Selby, director of public policy at AJ Bell, said the option of flexibility is “likely to appeal”, but he warned that linking income to health would be “hugely controversial”.
“Although it attempts to address the issue of those in poor health receiving little or no benefit from the state pension system today, it would surely give way to new fairness concerns,” Selby said.
“Many people would inevitably feel aggrieved that their neighbour received a higher income due to poor health.”