Pension sweetener for toiling into your 70s

State could offer cash lump sum to persuade older workers to delay taking their state pension

OLDER workers who delay retirement will be entitled to cash lump sums worth thousands of pounds under new recommendations to encourage people to work into their 70s.

The suggestion, by John Cridland, a former CBI director who is reviewing the state pension age for the Govern- ment, will inform official state pension changes due to be announced in May.

If adopted, the scheme could be used by millions to delay collecting the state pension in return for a one-off payout to spend as they wish. The sum would be based on the total value of someone’s state pension income and for how many years they delayed retirement.

At present, the new flat-rate state pension is £155.65 a week, or around £8,000 a year.

Mr Cridland’s suggestion would transform the current system, which lets people defer their state pension in return for a slightly higher income when they do finally retire. Paying cash up front, instead, would eliminate the downside of people needing to live into their 80s to benefit from the arrangement, he said.

The report also recommends that the Government’s much trumpeted pension freedoms should be extended to state pensions. Mr Cridland said people over state pension age should be able to use their pension like a bank account, allowing them to leave the balance of the benefit to grow by 5.8 per cent a year, the annual uplift which workers are currently offered in return for deferring state pension.

Today, the Department for Work and Pensions also publishes a Government Actuaries report, which reveals that the upward revision of the state pen- sion age to 68 will be brought forward by seven years to 2037, under Mr Cridland’s proposals. It means people now in their mid-40s and early-50s will be forced to work an extra year, as their retirement age will move from 67 to 68.

People now in their 30s and early 40s will receive their state pension at age 69, while those aged 30 and under will have to wait until they are 70 before being entitled to state pension.

In addition the report recommends the scrapping of the “triple lock” which protects pensioner incomes against inflation during the next Parliament, arguing that it is not affordable.

Tom McPhail, head of retirement policy for Hargreaves Lansdown, said: “The good news, in as much as there is any here, is that these measures will help to keep the state pension sustainable in the long term.

“The proposals around employment opportunities for older workers and split deferral of the state pension should all help extend working lives. But this report is going to be particularly unwelcome for those in their early-40s likely to see their state pension age pushed back another year,” he said. “For those in their 30s and younger, it reinforces the expectation of a state pension from age 70, which means an extra two years of work. This report also looks like the death-knell for the state pension triple lock.”

By Katie Morley CONSUMER AFFAIRS EDITOR