Government plans to increase spending on the state pension have been branded as "unaffordable and irresponsible" by a leading think tank.
The Institute of Economic Affairs (IEA) has argued that, rather than increasing expenditure, the financial issues caused by an ageing population could be better solved by wider reforms to the labour market and increasing the state pension age.
In their latest report, Income from Work – The Fourth Pillar of Income Provision in Old Age, the IEA argue that the current state pension system is actually encouraging early retirement, which could have fuelled the dramatic drop in employment levels among 60-64 year-olds over the last generation.
People retire earlier now than they did in the 1960s, despite life expectancy being significantly higher, which could be a "ticking time bomb" for public finances as people are entering retirement sooner – the IEA estimates that, under current policy, state pension expenditure could rise by as much as 42% by 2062.
The think tank supports the concept of later retirement and has urged the Government to speed up the rate of reforms. Its ten policy recommendations include bringing state retirement age to 68 by 2023 and linking retirement age to life expectancy thereafter, as well as making private pension schemes compulsory and making older workers exempt from age discrimination laws and employment protection legislation to encourage firms to hire older workers.
The report comes after the Government announced earlier this week that state pension would continue to rise by at least 2.5% each year if the Conservatives win the next general election, by keeping the "triple lock system" – where the state pension would increase by whichever is higher out of inflation, wages or 2.5% – in place.
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