A former minister has called on the government to pay people who reach state pension age for at least five years, even if they die.
Sir Steve Webb, who was pensions minister when the triple lock was introduced, said the state pension age should rise, but urged chancellor Rachel Reeves to implement a “minimum guaranteed payout” of five years, which would protect those who are expected to live for less long. Then, if someone died within those five years, their heirs would receive the payout instead.
Writing in a report for pensions consultancy LCP, where he now works, Sir Steve argued that the pension age should rise by one year every decade to account for increasing life expectancies, with people ending up with the state pension for 20 years on average.
He added that those who die before reaching state pension age but have paid into the system should also get a similar guaranteed payout, such as through the working-age bereavement benefits system.
The calls come as Ms Reeves is under increasing pressure to plug a hole in the country’s finances at the upcoming Budget this month.
Sir Steve told the i: “Our proposal for a guaranteed minimum payout period of five years represents a ‘something for something’ reform. Those who have paid into the system all of their lives would be guaranteed that they or their heirs would get a minimum payout once they start drawing a pension. This would be a concrete way of addressing concerns over unfairness each time state pension ages are increased.”
Spending on the state pension has risen over the past eight decades from around 2 per cent of GDP to around 5 per cent currently, according to the Office for Budget Responsibility, which forecasts this will reach 7.7 per cent by the early 2070s.
The fiscal watchdog said in a report released in July that this increase is down to the combined effects of an ageing population as well as the triple lock policy.
After remaining the same for decades, the state pension age increased for women from 60 to 65 across the 2010s, before reaching 66 for both men and women between 2018 and 2020.
Life expectancy in the UK now stands at age 83 for women and 79 for men, according to the latest figures from the Office for National Statistics.
Period life expectancy at birth in the UK in 2021 to 2023 was 78.8 years for males and 82.8 years for females, while period life expectancy at age 65 years was 18.5 years for males and 21.0 years for females.
The proposal comes amid reports that the chancellor will target employee pension contributions in a bid to raise more money. She is said to be preparing to cap the amount of someone’s salary that can be sacrificed for extra pension contributions before national insurance contributions are incurred to £2,000 a year.
