The Tony Blair Institute has proposed replacing the UK state pension with a Lifespan Fund from 2030, under plans that would also scrap the triple lock and introduce a smoothed earnings link.

In its report, The Lifespan Fund: Reforming the state pension for a more affordable, flexible and fair future, the think tank set out proposals for a new model under which individuals would build up entitlement through work and other recognised activities, rather than relying on a traditional state pension.

Under the proposals, credit could be drawn on during working life for defined purposes such as unemployment, retraining or caring responsibilities, before being rebuilt when individuals returned to employment and ultimately converted into a guaranteed income at retirement.

The report argued the model would be more flexible than the current system, fairer by linking retirement age to individual health rather than a fixed state pension age, and more affordable by capping the lifetime value of support at the equivalent of 20 years and replacing the triple lock with a smoothed earnings link.

Commenting on the proposals, LCP partner Steve Webb said: “The idea of linking state pension payments to individual health records and individual life expectancy is deeply troubling.

“Leaving aside issues of confidentiality and data quality, it is very hard to make a precise leap from health records to life expectancy.”

He said the report ruled out paying higher pensions to people in poorer health due to lifestyle choices, such as smoking, but questioned how the impact of those choices on overall health could realistically be separated, adding that any appeals mechanism over pension entitlement risked becoming highly complex to administer.

“We have just created a new state pension system which is relatively simple and standardised and which forms a firm basis for retirement planning,” Webb continued.

“It would be a huge backward step to replace it with something fiendishly complex and highly intrusive, and which would take many decades to implement in full”.

Responding to the report, Barnett Waddingham head of DC pensions, Mark Futcher, said: “Any debate about the future affordability of the state pension is welcome and necessary, particularly given current fiscal and demographic pressures.

"However, the most important question is not just how the state pension is uprated, but whether working people are being supported to build sufficient retirement income alongside it.

He argued that if policymakers were serious about improving long-term retirement outcomes and reducing reliance on the state, reform of automatic enrolment must be the priority: “That means extending coverage to all workers, including the self-employed and those on lower or irregular earnings, and ensuring contributions are based on total earnings rather than a narrow band.”

“Equally important is adequacy,” he added. “Current contribution rates are simply too low to deliver a reasonable standard of living in retirement for many people. Gradually increasing minimum contributions towards levels closer to 12 per cent, with appropriate support for employers and employees, would make a far greater difference to retirement security than short-term changes to pension uprating mechanisms.”

This article was first published on our sister website, Pensions Age.

---