The third review into the state pension age will see pension providers offering up their suggestions for change

The Government has been urged by a leading pension provider to let workers take their state pension early, as the third state pension age (SPA) review stopped taking evidence.

Providers have been sharing their recommendations with Labour, with Aegon suggesting some workers should be able to take their state pension early – albeit at lower payments – should the SPA be increased.

The review is looking at how changes in life expectancy, along with other factors, should be reflected in future changes to the SPA, which is increasing to 67 by 2028 and is due to increase to 68 by early 2040.

Ministers are conducting a comprehensive assessment of the statutory retirement age, which could see it rise faster than previously planned.

Aegon, Standard Life, Scottish Widows and other providers told The i Paper what they would like to see change in the review, which will be published by March 2029.

Allow people to take the state pension early

Aegon, one of the UK’s leading pension providers, said the age at which you can draw your state pension has a “huge” impact on individual retirement plans, even for those with substantial private or workplace pensions.

Steven Cameron, pensions director at Aegon UK, said: “We believe people should be given at least 12 years’ notice before any increases, so they can plan ahead.

“We also believe that if the SPA increases further, people should be given the option to take it a little early, subject to a reduction in yearly amount to make it financially fair.”

Doing so could help those avoid financial difficulty in later life.

However, former pensions minister and current partner at LCP, Steve Webb, said he strongly opposes the idea.

He said: “Suppose, for example, that someone in the target group – eg someone living in Blackpool with low life expectancy – claims their state pension at a reduced rate and early. What happens later in retirement?

“We know that the new state pension is just a few pounds above the pension credit line, so if they take it several years early, it would have to be reduced by at least 10 per cent. This would take them under the pension credit line.”

Pension credit plays a vital role in boosting the income of the poorest pensioners and acting as a gateway to other support, such as help with NHS costs and a free TV licence for the over-75s.

Mr Webb added: “Although early access to a reduced state pension is superficially attractive, it would be a bad policy. The main reason for this is that the state pension remains very low by international standards and even the full pension is not enough to meet estimates of the income needed in retirement to fund a decent minimum standard of living.

“If people took their pension early and it was then permanently reduced, you could see large numbers of people in retirement living below the poverty line.”

Introduce a 12-year lead time for changes

The Investing and Saving Alliance (TISA) has also warned that raising the SPA while weakening tax incentives for private pensions – as has been rumoured – risks leaving millions of future retirees financially exposed in later life.

It has urged policymakers to stress that while life expectancy is a key consideration, it must not be the sole driver of policy.

TISA recommends including a minimum 12-year lead time for any changes made to the SPA, early access options which would benefit groups with reduced life expectancy, and stronger auto-enrolment measures to bolster pension adequacy.

Renny Biggins, head of retirement at TISA, said: “Without sufficient time and support to plan, many individuals — particularly those in lower-income households or with shorter life expectancies — could find themselves financially exposed, unable to bridge the growing gap between retirement and access to the state pension.

“This approach risks undermining the adequacy and fairness of retirement outcomes across generations.”

One single SPA to avoid confusion

Retaining a single SPA is best to avoid confusion amongst savers, according to Pensions UK, but the Government should be open to ideas to increase flexibility to retire early, in certain circumstances, it said.

Review every five years

Catherine Foot, director of the Standard Life Centre for the Future of Retirement, said it is “crucial” the Government considers how to avoid deepening inequality for future generations.

She said: “A review of the SPA should also note that it is intrinsically linked to typical levels of private savings.

“The Pensions Commission is currently looking at people’s projected retirement outcomes and our modelling points to issues in the coming decades with current rates of saving insufficient to secure people adequate retirement incomes.

“To ensure the Commission’s recommended solutions will be thoroughly implemented, we believe a statutory requirement for the Government to review retirement adequacy every five years, alongside the SPA, will be necessary.”

Scrap the triple lock

The triple lock has also come under pressure, with Aegon suggesting that keeping it in future means the SPA must rise faster to control costs, leading to people possibly being pushed into poverty sooner.

The triple lock ensures the state pension increases each year in line with the highest of average earnings, inflation or 2.5 per cent.

Rachel Reeves should scrap the state pension triple lock and replace it with a link to workers’ wages, the Institute for Fiscal Studies (IFS) said.

The thinktank said the triple lock made it harder to plan public finances – and benefited better-off pensioners far more than the poorest.

The IFS suggested that the best way to fix pensions policy in the long run would be to introduce a “smoothed earnings link”, with the Government setting a target that the state pension should match a certain percentage of average earnings.

Each year, the pension would increase at the same pace as wages, except in years when workers’ pay lags behind inflation – in which case the pension would go up in line with prices for as long as it took for earnings to catch up again.

Pensions UK added that the OBR’s projections indicate that, if maintained, the triple lock could increase state pension spending to approximately 7.7 per cent of GDP by the early 2070s, up from around 5 per cent today.

It said this significant rise presents long-term sustainability challenges, particularly considering demographic shifts and economic uncertainties.

Budget pension tax concerns

There are ongoing concerns that the way pensions are taxed could change in the Budget.

Currently, from age 55 – rising to 57 from April 2028 – you can withdraw up to 25 per cent of your pension savings tax-free. This can be taken as one or more lump sums, rather than regular income.

However, there is a cap on how much you can take overall. The current lump sum allowance is £268,275, which applies across all your pensions combined, not to each one individually. In practice, you’ll only hit this limit if your total pension savings exceed £1,073,100.

Any withdrawals beyond your tax-free entitlement are treated as income and taxed at your marginal rate, which could be as high as 45 per cent.