John Cridland

John Cridland’s consultation report into the state pension age, commissioned by Ros Altmann and delivered today, does not say quite what the modernisers wanted it to.

Accelerated pension ages and the scrapping of the triple lock deliver a double whammy to all of us but especially to those under 45, who see their retirement age recede even faster than we expected.

Cridland is brutal, he has not drunk the Kool-aid. He speaks of a society with rapidly diminishing private pension expectations and an increasing distrust in the consequences of putting money by.

His report is not what we want to hear, but definitely what we should be hearing. It is a good report.

Limits to these freedoms

We are in the era of “flex” where we have power to vary our pay, our benefits and our retirement saving to meet our immediate needs.

The freedom to drawdown money from a capital reservoir is now an essential for the modern money saving expert (and advisor). “Time is an ocean, but it ends at the shore” likewise freedom’s circumscribed by the possible.

The possibility of freedom to draw our state pension as it suits crosses into the impossible. At least that’s the conclusion of John Cridland’s review into the state pension age beyond 2028. This comes as a blow to Ros Altmann, who wanted different life expectancies to be rewarded by variable access to state benefits.

The less liberal Liberal, Steve Webb is more pragmatic, announcing that

Having different pension ages for different groups or in different postcodes would create a nightmare of complexity and fresh injustices

It would also ride roughshod over the principles of social insurance that underpin the welfare state. We have winners and losers in state pensions, the winners are graduates who start work in their 20s and live into their 90s; the losers the blue collar workers who start work at 16 and die of exhaustion 50 years later.

State benefits are intrinsically unfair; they cannot be targeted to meet need nor properly reflect money-in, money-out. Even the State Earnings Related Pension could not win popular support. But the State Pension remains a loved institution for all that.

Despite the cock-up surrounding WASPI, the state pension has been integrated with the second state pension (SERPS re-named) without too much fuss. There are winners (the self-employed and the contracted-out) and there are losers, those with high S2P entitlements. But for the most part those viewing their triple-locked BR19 entitlements seem pretty satisfied.

We are drawing to the end of the great state pension deferral offer (effectively a 10% return on capital deferred) and those who’ve taken advantage can look forward to a lifetime reward. It’s all a far cry from the world of wealth management!

But for most people, the state pension is – for all its rigidity – the best pension they’ll ever had. Applying a conservative income multiplier of 30, It is currently worth around £260,000 – as Paul Lewis likes to point out, the price of an entry level Lamborghini.

Should the “flexinauts” tremble at reaching the outer membrane of freedom’s scope? I suspect not.

The Government has its own way of apportioning value to the vast constituency of those in later age. Demands on the public purse from long-term care, winter fuel subsidies, bus passes, TV licence rebate, age allowance and general strain on the NHS from decaying bodies, mark the elderly as a boundless opportunity for redistribution.

And of course, all these benefits are paid out of general taxation without a fund manager in sight.

It is salutary for financial advisors to remember that however subtle their strategies, their clients will continue to rely for the most part on the state for their later life welfare.

There is perhaps an alternative freedom available from the state. It is characterised by ease and distinct from our world of wealth management by needing no advice (other than perhaps Citizen’s Advice or the forums of moneysavingexpert.com). This is a freedom from the need to worry- at least about the availability and delivery of the entitled benefit.

Perhaps this explains the peculiar affection that we still have for the state as provider – it is utterly trustworthy. I once got into trouble from my then employer (an insurer) for writing that all private pensions aspire to the efficiency of SERPS.

I was right, which explained how little freedom I had to express my views thereafter!

Cridland also recommends:

• A new system of carer’s leave, allowing older people with caring responsibilities to have time off work
• A mid-life “MOT” to help people take decisions about work, health and retirement
• Some vulnerable people in their 60s should have access to a means-tested benefit, along the lines of pension credit
• There should be no “early access” to the state pension, despite this being raised as a possibility in the interim report
• People could defer drawing their pension, taking higher benefits later

Put your feet up- why don’t you!