Why is the government removing incentives to work for longer?

Workers The government is keen to encourage us all to work longer so it seems counter intuitive to slash the bonus received for deferring your state pension.

The state pension age may be increasing but there is still a gap between the age at which the government provides a state pension and the age at which people drop out of the workplace.

Traditionally we are seeing people retire earlier than the state pension age and the majority of people still see 65 as their retirement age, even though the state retirement age is edging closer to 70.

One of the main problems with people retiring early is what's known as the 'dependency ratio', which is the ratio of working people to non-working people. The dependency ratio has been decreasing, in 1950 there were 11.75 working age people to every person aged over 65. That has shrunk to 8.5 in 2011 ad by 2050 it will be just 3.9.

Getting people to continue working should be a priority for the government and it has already responded in part by increasing the state pension age and also by scrapping the default retirement age, which means employers can't get rid of older workers at age 65.

But recent changes to the state pension seen counter intuitive to the aim of getting people to work longer. If you defer taking your state pension you used to receive a bonus of 1% of your pension for every five weeks deferred, totalling 10.4% a year. But from 2016 that bonus will be cut to 5%.

If we need to get more people working for longer then why take away the financial incentive to work?

The government needs to lead by example, putting together policy that nudges people to stay in work as part of a comprehensive strategy of increasing our older workforce.

If the government makes it clear that older workers are a valuable resource then employers will follow. Between the employers and the government we need to help people to stay in employment, even through increased part-time jobs or flexible working and allowing sabbaticals.

Politicians may think that increasing the state pension age will be the answer to people living longer they are wrong. Longer working lives cannot in all but the most extreme cases be forced, they have to be encouraged through more appropriate jobs and financial incentives like the deferral bonus.
Cutting incentives may reduce costs in the short-term but there may be increased long-term implications.

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Why is the government removing incentives to work for longer?

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