The government should investigate offering flexibility for people to start taking their state pension up to three years early, but at a reduced level to make it financially fair, Aegon has stated.

Responding to a call for evidence into how to set the state pension age in future, Aegon called for a radical overhaul to introduce new flexibilities that would “take state pensions a small step towards private pension freedoms” and support people with more flexible multi-stage lives.

Aegon emphasised the importance of this proposal by pointing out that the state pension age is due to increase to 67 in 2028 and then to 68 by 2039 and, with life expectancies continuing to increase, the government’s consultation on how to set the state pension age will likely mean it keeps rising.

Pointing out that some individuals rely heavily on the state pension, Aegon argued that opting for an earlier, reduced amount could leave their retirement income below the current threshold for means-tested benefits and, to understand any impact on their eligibility to claim such benefits, individuals might be required to take advice from Money Helper.

Aegon pensions director, Steve Cameron, commented: “The higher the state pension age, the more individuals will struggle to stay in full-time work. This could be because of their health, a physically or mentally taxing job or caring responsibilities for elderly parents. An ever-rising fixed state pension age could become increasingly divisive and out of sync with today’s flexible private pensions world.

“While individuals can already choose to defer their state pension in return for a higher monthly payment, there’s no flexibility to start it from a younger age. We support giving people the choice to draw it up to say three years earlier, at a reduced amount to make it financially fair for all.

“But as automatic enrolment into workplace pensions continues to mature, millions more employees are building up an increasingly valuable workplace pension, reducing their reliance on the state pension and the risk of falling below means tested thresholds.”

Cameron also referred to a break in historic trends and expectations that might affect people’s relationship to their pensions, stating: “Historically, people’s lives have followed a pattern of education, paid employment and then retirement. But as people live longer, the trend may be towards a more varied multi-stage life with more varied careers and ‘breaks’ from earned employment to retrain, care for others or enjoy other life experiences.”

Cameron argued that evolving life patterns was increasing people’s preference for a ‘transition’ into retirement, which should combine time working with modest pension income beyond retirement ages.

A DWP spokesperson commented: “The state pension provides the foundation for retirement planning and financial security in older age.

“The government is required by law to regularly review the state pension age and has launched the second State Pension Age Review.

"This will consider whether the rules around state pension age are appropriate, based on a wide range of evidence including latest life expectancy data and two independent reports. It is too early to speculate on the outcome of this review.”

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