State Pension age reduced to 63! Here’s what you’d get if you retired early

Baroness Altman calls for flexibility on state pension age

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The Government is pushing back the State Pension age in order to save money as life expectancy rises. Cutting it from today’s level of 66 to 63 would be a move in the other direction. It would be expensive, but pension experts say it is doable with one proviso.

A Parliamentary petition calling for the State Pension age to be reduced to 63 to help people like bricklayers and HGV drivers currently has more than 10,000 signatures. It needs 100,000 to be debated in Parliament.

Steven Cameron, pensions director at insurer Aegon, said there is a strong case for the Government to explore allowing people to choose to take their State Pension from an earlier age.

“As the State Pension rises, it gets harder and harder for people in physical or stressful occupations to carry on working.”

Retiring early would be tempting for many people in this situation, but there is one big downside, Cameron said.

If you wanted to retire and draw your State Pension at age 63, you would almost certainly have to accept a lower income in return.

“If the Government allowed people to choose to take their State Pension from an earlier age, say, 63, it would have to be paid at a reduced amount to reflect the fact it is starting earlier and may therefore be paid for longer.”

Although this income will rise in line with the triple lock, just as if you had retired at 66, it will be from a lower starting point.

This means you would get less income for the rest of your life. But how much less?

We asked Aegon to calculate how much income somebody would get from the new State Pension if they retired at 63 instead of 66.

Currently, people can defer taking their State Pension, so they receive it at a later date and get 5.8 percent more pension for each year they delay.

Aegon applied the same formula to the principle of taking a pension early.

Today, the full basic new State Pension is worth £179.60 a week. “It could fall to £148.35 a week if you accessed it at age 63 rather than 66,” Cameron said.

That would reduce your annual income from £9,339.20 a year to £7,714.20. It is a big drop but on the plus side, it does mean getting paid for three extra years so the overall total you receive could be similar.

That will have a strong appeal to those who are in poor health or simply exhausted from work. Many may have a lower life expectancy so the sooner they start claiming their State Pension, the better.

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These figures assume somebody has made the maximum 35 years of qualified National Insurance contributions, and will get the full basic new State Pension.

Cameron said that offering early access at a reduced level could be a big help to many thousands. “It is already possible to defer taking the State Pension in return for an increased weekly amount, so may not be a big step to allow people to take it early as well.”

There is also a fairness argument. Under pension freedom rules, people are now allowed to draw their workplace and personal pensions from as early as 55. “Yet there is no flexibility to take an early State Pension,” Cameron said.

There are some technical challenges. “The Government would need to find a way of making sure people don’t end up with a retirement income below the means-tested Pension Credit benefit level.”

Cameron added: “With some creative thinking, this issue shouldn’t be insurmountable and would be worth the prize if it helps people transition into retirement.”

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