Treasury is only winner in pensions shambles
UNTIL a few years ago, deciding when to retire was pretty straightforward.the state pension kicked in when you turned 65, if you were a man. For women, the retirement age was fixed at 60.
That did not meet the spirit of today’s gender equality laws but at least people knew where they stood and could plan for it.
Knowing when to retire is not so straightforward now.the retirement age was lifted to 65 for women, then 66 for everyone, to keep it affordable despite rising life expectancy.
That is not the end of the increases. From 2026 the state pension age will start to rise again, until it hits 67 in 2028. It will start rising again to 68 from 2044, or maybe as soon as 2037.We will not be told the date until July 2023.
Those who retired under the older rules will probably be glad they did, having avoided a lot of confusion.
But what about everybody else?
WASPI WOMEN GOT STUNG
Increasing the state pension age was a disaster for 3.8 million women born in the 1950s, many of whom only realised at the last minute that they would have to work for another five or six years to claim their pension.
They have been forced to soldier on, often despite suffering serious illnesses, as have their partners in many cases.the only alternative for thesewaspi women – named after the Women Against State Pension Inequality campaign – was to claim state unemployment or sickness benefits. Many were too proud to do so.those who did claim found the benefits were too little to live on.
Angela Madden, chair of the Waspi campaign group, said affected women were not given enough time to plan and the consequences have been “devastating and life-altering”.
Some lost as much as £50,000 in state pension payments as a result. Others died before they were old enough to claim anything. Waspi women are still waiting to find out if they will get any compensation.
BAFFLING COMPLEXITY
The UK is not the only country to increase its state pension age to reduce the financial burden of an ageing population, but the Waspi debacle shows the dangers in fiddling with the rules.
Adding complexity may be fine for pension policy wonks, who can follow every legislative twist, but destroys the lives of people who do not (which is most of us).
It is hardly surprising people get confused, given how complex our pensions system is.
Which makes it really worrying is that the Government is now considering introducing yet another layer of complexity.
Under pension freedom rules, people can start drawing money from their workplace or personal pension pots from age 55.
The Treasury plans to increase that to 57 from April 6, 2028, to keep pace with the rising state pension age, but crucially, not for everybody.
Some will be able to retain the lower age by opening a scheme offering an unqualified right to access their pension at age 55 by April 5, 2023.
HOT MESS
AJ Bell head of retirement policy
Tom Selby said the Treasury has taken what should have been a simple reform and turned it into a “hot mess of complexity”.
As well as causing confusion, this could open the door to scammers, and Selby urged the Treasury to “step back from the brink”.
He said: “Savers already have to navigate a pensions framework which is too complex, containing three different versions of the annual allowance, a lifetime allowance and myriad other ‘protection regimes’ introduced down the years.”
Selby said it will be all too easy to make the costly mistake of drawing a pension at 55 when you should have waited until 57: “HMRC would almost certainly clobber you with an unauthorised payment charge of 55 per cent.”
Another problem with pension complexity is that it blinds people to some of the benefits on offer. For example, people are not obliged to draw their state pension when they turn 66, as many assume.
They can defer taking it if they wish and in return get more when they do take it, said Stephen Lowe, director at retirement adviser Just Group: “This will benefit those who continue working beyond age 66 and would pay more income tax if they drew their state pension at the same time.”
Yet just one in 10 takes advantage. More might consider deferring, but do not realise it is an option.
‘No wonder people end up being confused and miss out on
money or pay taxes they could
legally avoid’
MISSING OUT ON CREDIT
When the pension system comes into contact with state benefits, things get even more complex. More than a million of the poorest pensioners fail to claim Pension Credit, a meanstested payment that tops up the state pension to £177.10 for single people and £270.30 for couples.those who don’t claim lose on average £1,600 a year as a result.
Inheritance tax rules are similarly complex, a legacy of endless tweaks that Chancellors have introduced to win friendly headlines on Budget Day.
No wonder people end up being confused and miss out on money due or pay taxes that they could have legally avoided.the only beneficiary of this confusion is the Treasury.