It is actually an expense to read this article as it sits behind the i newspaper’s paywall. I decided to sign up to the paper (can I call it that) because I am genuinely interested in the argument for paying state pension to those who are expected to die before they can get paid their state pensions. It’s £20 for a year and if it gets enough proper subscriptions , I may get to renew in a year’s time. It’s a payment in hope!
Right now I can’t get my access to work and worry – so the best I can give you is my thoughts on Ros Altmann’s Linked in post which links to this (if you can get to your ipaper account)!
Terminally ill to have early payment state pension? My response
An ill-health early retirement feature on the State Pension would be expensive to administer as every claim would need to be checked and the cost of administration could be a significant additional payment to the state pension payments that would be made.
There is of course no upside for other tax-payers who aren’t unlucky enough to look like they’re going to die so we’d have to see paying the state pension early to those with limited life-expectancy as a kind of compensation for not paying it later.
But where do you stop? Do you admit that those who die before they reach the “ever rising state age” are deserving to leave their inheritors a payment? Are spouses being done out of their residual pensions by their partner not making it to state pension age.
Going down this route comes a whole set of questions about fairness which lead to some important questions about social insurance. We run a state pension system to help those who live not those who don’t and it’s a brutal truth that our state pension system is not here to pay early retirement pensions to those who may or may not live longer.
We all know people alive to day who have expected to die and we celebrate every day of their lives- so long as they want to live. Those who choose to die in Switzerland voluntarily bringing on their deaths because life is unbearable are people who deserve compassion. But they do create problems for life insurers and I suspect that there would be further problems for them, if they were in a state pension that had been granted to help them live.
I think that the rules surrounding the state pension are fixed and can only be discussed in a formal way by a Pension Commission (we have one going on right now). Of all the things that the Pension Commission has to discuss, my guess is that an ill-health early retirement state pension is low on the priorities. But Jeannie Drake and Ros Altmann are both members of the upper house of parliament and I am sure that they could address this issue socially to see whether there is merit in it.
For me, and at 63 I might be a candidate any day, I have no expectation of insurance from the state pension before my state pension age in just over 4 years time. My partner was told I had a 10% survival chance as she gazed on me in hospital, I appear to have been a 9-1 shot who unexpectedly won.
I do not want to be a burden on the legal system or the DWP as if I am to have a short life expectancy, I will be a burden on the NHS. I hope that I don’t cause the NHS any further problems but am happy to claim on my NHS insurance if I do.
So – without reading the article because despite paying my i subscription , I can’t get to Ros’ article, I don’t agree with the concept of an ill-health version of the plan , for those who won’t live to get VFM from their national insurance.
Life and national insurance have winners and losers. It’s like that. Ill health state pension to terminally ill people is a non-starter for me.
Regarding an ill-health early retirement feature, or other differences in life expectancy/longevity … maybe the better alternative is a death benefit.
Back in the states, because of the wealth redistribution that is intentional in our Social Security system (they don’t call it “Social” for nothing), those who die prematurely may have earned survivor benefits if there is a surviving spouse or minor/disabled child who qualifies.
However, once I learned the basics about our Social Security system, funded by the Federal Insurance Contributions Act (FICA), I was always surprised to see that there wasn’t any significant death benefit, kind of a refund of insurance premium. Here, it is only $255, which was added by 1954 legislation.
This is an area of interest because of a well reasoned, new funding proposal to increase Social Security progressivity for low income workers as a partial offset to raising the Full Retirement Age from 67 to 70. See: https://littleknownfacts.substack.com/p/increasing-social-securitys-retirement?
Myself, I think our funding solution should improve support among today’s workers by adding some certainty to the benefits – increasing the death benefit for those who die prematurely. That way, people would be certain that they or their immediate family survivors (parents through children, if any) will receive retirement benefits (starting at Full Retirement Age, or continuing existing payments) totaling no less than a refund of their own contributions (tax free, as they paid in on an after tax basis, after all) – less any benefits actually received.
With regard to the current proposal in the states, it is important to note that Congress decided in 1983, to raise the Normal Retirement Age from 65 to 67 – starting with those born in 1938 and completing the phase in for those born in 1960 or later (currently, age 65). In 1980, life expectancy at birth was 73.7, today closer to 79 (all races, both sexes). And, since 1980, life expectancy at age 65 has increased another 3 years, from a 1980 level of 16.4 years to something closer to 19.4 years. So, no problem with increasing the Social Security Normal Retirement Age to 70. We might also increase the age for deferred commencement credits from age 70 to age 75 (to coincide with the Required Beginning Date/Required Minimum Distribution rules).
Obviously, Congress didn’t care about differences in life expectancy/longevity based on income in 1935, nor in 1983, nor at any other time when amending the Social Security program.
And, if we are to start adjusting for differences in life expectancy/longevity, for ill-health, what other variations should be priced in. Sex comes to mind – should we reduce the benefits for women because they have historically lived longer or perhaps increase the benefits for men? We once had a few sex distinct provisions … but those were removed.
How about all the other factors that affect life expectancy/longevity, including but not limited to: genetics, obesity, smoking, drug use, diet/nutrition, physical activity, mental health/stress, race, ethnicity, sex, marital status (social connections), physical environment/geography, education, quality of sleep, etc. Price those in as well?
Seems a stretch to decide on one factor … income … elevating that above others.
Dear Henry
I just wanted to thank you for highlighting this. It is an important discussion. My main concern with IHT being levied on pensions as proposed is that the 40% rate (plus income tax post-75 too) will encourage the average worker who has DC savings, to empty their pension fund as soon as possible, take as much as they can at 20%. These people will have nothing left for their 80s and 90s. My concerns are not about the very wealthy with huge pension funds, but those who have built up, say, £200,000 – £300,00 (which is what we are told the new DC regime is aiming for to help with adequacy and benefit from long-term investment growth over time) who will have a total income of well under the c.£50kpa 40% tax threshold – who can take maybe £10,000 – £20,000 a year from their 60s onwards and will have nothing for their 80s and 90s, but they have an incentive to pay just 20% tax, rather than risking dying unexpectedly young and the taxman taking much or most of it. It is what happens to the average that is of most concern – the very well off are a very small minority and can afford to find other ways of passing on wealth, while upper middle and middle may build up their DC pot for decades, with lots of tax relief added, and then still have nothing but State Pension in later life. My recommendation, to both avoid all this bad behavioural incentive and restore the confidence to keep money for much later life, is a flat-rate 20% tax on death. No incentives to take it out quickly. No complicated fiddly administration. No burden on estates or personal representatives. Easier for providers to just pay out in line with Expression of Wish form, or send money less 20% to personal representatives to divide.
I’m struggling to follow this, if it’s about pensions pots in a range of £200-£300k.
The IHT threshhold is £325k, and you can get relatively cheap life assurance to deal
with contingent IHT liabilities before you hit 75.
One of the fringe benefits from securing such life assurance is updating any health issues you may have.
Been there, done that.