Retirement age and pension age – confusion reigns

2005

It's now probably too much to expect that the difference between Britain's pension age, state pension age and a retirement age will ever be properly understood. But just to remind you…

Pension age: the age at which you can take a full occupational (or private) pension entitlement without discount for taking it early.

State pension age: is the age at which you can begin to take your basic state pension – whether or not you continue working.

Retirement age: is the age at which you have to retire if your employer does not wish to keep you, known as Normal or Mandatory Retirement Age. From October 2006, the Default Retirement Age for most UK employees will be 65 .

Judging by the recent comment and discussion on both the Pensions Commission report and the affair of public sector pension ages, most of the media don't understand these differences and invariably use the terms synonymously.

But the important thing to note is that Pension Age, Retirement Age or State Pension Age are the not the ages when the majority of people actually retire. Nor is it the time when the majority start to take their non-state pension.

Hopefully, these different notions may wither on the vine as they become less relevant.

Already a "pension age" is meaningless for the majority of private sector workers who are on defined contribution pensions. They will take that pension whenever circumstances dictate – increasingly bearing in mind that the annual income they can expect from their pension pot has halved since the 1990s and will halve again if life expectancy estimates soar upwards at their current rate.

Alternatively, many will mix work and pension from next April when Inland Revenue rules change to allow this – as long as their employers make the necessary preparations.

The State Pension Age is insignificant for those already dependent on benefits as they move between almost identical packages at age 65. As people start to choose when they take their State Pension, a specific Pension Age will be less important.

It is understandable that seven million public sector workers are indignant that anyone should want to change retrospectively their right to a final salary pension at 60. For 50 years everyone has believed that a pension was a risk free promise of money in later years as part of their reward package.

The last 10 years have brought home to all outside the public sector that there is no such thing as a risk free pension. Companies go bust, people lose retrospectively all or part of what they thought was safe.

If the State were a business it would also be facing bankruptcy. The latest settlement on public sector pensions is in denial of that reality and there are still hard political decisions to be taken.

For the many facing reduced retirement pension income, ever higher Council Tax charges are a resource transfer to guarantee the expectation of public sector employees of a gilt-edged final salary pension at age 60.

The public-private sector chasm over retirement ages and pension ages is not sustainable. Whatever present ministers say in defence of their recent settlement with the public sector trade unions, sooner or later that decision will have to be revisited.

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About The Author

Patrick Grattan
Patrick Grattan

Patrick is Chief Executive of the Third Age Employment Network (TAEN), an independent charity, working for better opportunities for mature people to continue to learn, work and earn for as long as they want, or need, to do so.