A former minister has urged the government to offer a payment to those reaching state pension age for at least five years, regardless of whether they pass away during that time.
Sir Steve Webb, who was in charge when the triple lock was established, stated that while the state pension age should indeed be increased, Chancellor Rachel Reeves should implement a five-year “guaranteed minimum benefit” to support individuals with shorter life expectancies. If a person passes within that five-year window, their beneficiaries would receive the payout.
In a recent report from LCP, where Sir Steve currently works, he recommended raising the pension age by one year every decade to match increased life expectancy, suggesting that individuals would, on average, receive pensions for about 20 years.
He also mentioned that individuals who die before they reach the state pension age but who are enrolled should benefit from similar guarantees, possibly through a bereavement benefit scheme while they are still working.
This appeal coincides with growing pressure on Mr. Reeves to address fiscal shortfalls as he prepares his budget proposal this month.
Sir Steve remarked: “Our suggestion for a five-year minimum payment reflects a ‘do something for something’ reform. Those who have contributed throughout their lives would be assured that they and their heirs would receive a minimum payment upon retiring. This could effectively tackle inequity concerns associated with raising the state pension age.”
Over the last 80 years, pension expenditure in the UK has surged from about 2% of GDP to around 5%, with projections indicating it could reach 7.7% by the early 2070s, as noted by the Office for Budget Responsibility.
This financial increase is attributed to an aging population and the triple lock mechanism.
Historically, the state pension age remained stable for many years, but it was raised in the 2010s from 60 to 65 for women, and then to 66 for both genders between 2018 and 2020.
Current life expectancy now averages 83 years for women and 79 years for men, according to the latest data from the Office for National Statistics.
From 2021 to 2023, life expectancy at birth was 78.8 years for males and 82.8 years for females, while those aged 65 could expect to live an additional 18.5 years for men and 21.0 years for women.
This proposal emerges as reports suggest the prime minister might focus on employees’ pension contributions to bolster funding. It is believed she is preparing to impose a cap of £2,000 annually on the salary that can be sacrificed towards extra pension contributions before National Insurance contributions begin.
