State Pension age is rising. 15 years ago, it was 60 for women and 65 for men, and it is now on a slow path to 68. Both the Pensions Commission and the State Pension age review are considering adequacy. This makes it the right moment to examine how we support people who leave the labour market before State Pension age because of disability or caring.
A full new State Pension is worth £230.25 a week, and Pension Credit tops weekly income up to £227.10. These figures matter because they shape what happens with early access. If someone leaves work before State Pension age and is allowed to claim their pension early with an actuarial reduction, many would find their weekly payment pulled up to the Pension Credit level as soon as they reached State Pension age. That would push people into a means-tested benefits, create more administration, and deliver little savings to the state.
Countries approach this problem in different ways. Germany allows people with severe disabilities to draw an old-age pension early, but applies a permanent reduction of 0.3% for each month taken early, up to a maximum cut of 10.8%. Canada lets people start the Canada Pension Plan at 60, but reduces it by 0.6% per month before 65, up to 36%. These are steep reductions which affect quality of life – is it right that being disabled and unable to work leads to lower State Pension?
Some countries don’t apply a reduction. Ireland pays an Invalidity Pension until age 66 and then transfers people to the State Pension at the full rate; Denmark provides disability and senior pensions for those whose work capacity is permanently reduced.
We have a decision to make. Leaving older disabled people and carers on working-age benefits until they reach State Pension age means they must live on a very low income, and increases the risk that they will draw on private pension savings early, leaving them worse off in later retirement. Allowing early access to the State Pension would give people a stable, predictable income and reduce reliance on the benefits system. But because of the Pension Credit floor, an actuarial reduction would not be cost neutral and would only add complexity. As State Pension age rises, and with both the Pensions Commission and the State Pension age review underway, this is the moment to decide whether unreduced early access is a fairer, simpler way to support those who cannot keep working until State Pension age.
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