Young Britons should be allowed to withdraw a years’ worth of their state pension early to help those who cannot rely on “the bank of mum and dad”, a think tank has said.
Researchers say the so-called “Citizens Advance” would be a “transformative” policy for those aged 18 to 40 who are struggling with issues such as home ownership, student debt and lack of funds to start a family.
Those who opt for the scheme would have to retire a year later – at 67 under current rules – in exchange for gaining early access to the cash, the new report from the Social Market Foundation (SMF) proposes.
The early state pension drawdown would be worth £12,548 at present rates, and only be available to those who have accumulated at least 10 years worth of National Insurance credits.
The proposal is broadly backed by young people, polling by the SMF shows, at 54 per cent support from of 25 to 40-year-olds.
Jamie Gollings, deputy research director at the SMF, said: “Britain is facing a crisis of opportunity. Whether you can buy a home, pay down debt, or start a family increasingly depends on the wealth of the parents you were born to – not the work you’ve put in.
“The Citizens Advance changes that. It’s not a handout – it gives younger people access to capital they’ve already earned, at the moment in their lives when it can make the biggest difference.”
The foundation points to findings that argue Britain is experiencing a ‘Great Wealth Transfer’ period, with an estimated £5.5 trillion to be passed down by the Baby Boomer generation – those born between 1946 and 1964 – over the next two decades.
Get a free fractional share worth up to £100.
Capital at risk.
Terms and conditions apply.
ADVERTISEMENT
Get a free fractional share worth up to £100.
Capital at risk.
Terms and conditions apply.
ADVERTISEMENT
Only a third of adults expect to be beneficiaries of inheritance over the next few years, however, which researchers warn will widen the UK’s wealth gap.
Some economists have criticised the proposals, with investment platform AJ Bell arguing they would offer “short-term gain” for “long-term trade off”.
Rachel Vahey, head of public policy at the firm, said: “The obvious potential benefit to this particular proposal is it could deliver a much-needed cash boost at a time many people really need it, particularly if they’re trying to repay debt or save for a deposit on a first home.
“The downside is that in doing so they would have one year less of state pension income to rely on in later life.”
Turning to the potential for future governments to change the state pension, she added: “Younger people may be better off building their own retirement savings through workplace and personal pensions, rather than relying too heavily on a benefit that is likely to change before they retire.”
The SMF said the policy could cost £1.3bn in its first year, if restricted to only those born after 1998 and only offered at the point they reach 10 years of National Insurance contributions.
Modelling by the agency suggests costs would settle at an annual £7bn after the first few years, but added that 89 per cent of this would be recouped from savings to the pension system and wider economic benefits.
A DWP spokesperson said: “Unlike other savings, a state pension cannot be rebuilt once accessed ahead of time, meaning those who do so may find themselves with reduced income later in life.”
“We want to help people reach major life milestones such as buying a house which is why we are boosting housing supply and addressing the cost-of-living head on through initiatives such as taking money off energy bills to put more money in people’s pockets.”