Let young Britons access state pension early and retire later, think tank urges
Young Britons should be allowed to withdraw a year’s state pension early to help those who cannot rely on “mum and dad’s bank”, a think tank has said.
Researchers say the so-called “Citizens’ Advance” would be a “transformative” policy for people aged 18 to 40 who are struggling with issues such as homeownership, student debt and lack of funds to start a family.
According to a new report from the Social Market Foundation (SMF), those opting for this plan will have to retire after a year (at age 67 under current rules) in exchange for early access to the cash.
The early state pension deduction will be worth £12,548 at current rates and will only apply to those who have accumulated at least 10 years of National Insurance credit.
The proposal is generally supported by young people, with 54 percent of young people aged 25 to 40 in support in a survey by SMF shows.
SMF deputy research director Jamie Gollings said: “Britain is facing a crisis of opportunity. Whether you can buy a house, pay off your debt or start a family increasingly depends on the wealth of the parents you are born into, not the job you do.
“Citizens’ Progress is changing that. It’s not a manifesto; it gives young people access to the capital they’ve already earned at the moment when it can make the biggest difference in their lives.”
The Foundation points to findings that suggest Britain is experiencing a period of ‘Great Wealth Transfer’, with £5.5 trillion estimated to be transferred by the Baby Boomer generation (those born between 1946 and 1964) over the next two decades.
Get a free partial share of up to £100.
Capital is at risk.
Terms and conditions apply.
ADVERTISING
Get a free partial share of up to £100.
Capital is at risk.
Terms and conditions apply.
ADVERTISING
Only a third of adults expect to benefit from an inheritance in the next few years, but researchers warn this will widen the wealth gap in the UK.
Some economists have criticized the proposals, arguing that investment platform AJ Bell would offer “short-term gains” in exchange for “long-term exchanges”.
Rachel Vahey, head of public policy at the firm, said: “The obvious potential benefit of this particular offer is that it could provide a much-needed cash boost at a time when many people really need it, particularly if they are trying to repay debt or save for a deposit on a first home.
“The downside is that when they do this they will have one year less of the state pension income they can rely on later in life.”
Referring to the potential for future governments to replace state pensions, he added: “Young people may be better off building their own retirement savings through workplace and private pensions, rather than relying too heavily on a benefit that is likely to change before they retire.”
The SMF said the policy could cost £1.3bn in its first year if it was limited to those born after 1998 and only offered at the point they hit their 10-year National Insurance contribution.
Modeling by the agency suggests costs will stabilize at £7bn a year after the first few years, but added that 89 per cent of this would be recouped from savings to the pension system and wider economic benefits.
A DWP spokesman said: “Unlike other savings, the state pension cannot be rebuilt once it has been previously accessed, meaning those who do so may find themselves with lower incomes later in life.”
“We want to help people reach major life milestones like buying a home, so we’re increasing housing supply and addressing cost of living directly through initiatives like taking money off energy bills to put more money in people’s pockets.”
