A think tank has proposed that younger people be given the option to take a year of their state pension early as a lump sum, in a plan designed to tackle what it describes as deepening intergenerational wealth unfairness. The Social Market Foundation (SMF), working alongside Labour MP Andrew Lewin, argues that the so-called ‘Citizens Advance’ could provide a much-needed cash injection at a critical life stage, while requiring those who take it to work one year longer before drawing their state pension.
How the Citizens Advance would work
Under the proposal, anyone who has built up at least ten years of National Insurance contributions would be eligible to receive a single payment equivalent to one year of the full new state pension. At current rates that would mean a lump sum of up to £12,547.60, potentially available decades before the normal retirement age. The SMF suggests the scheme should initially be open to people born from 1998 onwards – those turning 28 in 2026 – with others becoming eligible as they reach ten qualifying years of NI credits, depending on their post-18 education and work history.
The plan places no restrictions on how the money can be spent. The think tank envisages it being used to clear debt, save for a first home deposit, start a family, or change career. In its own survey of 2,000 adults, debt repayment was the most popular intended use, chosen by 18% of respondents, followed by housing at 16%. The SMF calculates that the advance could cover roughly a 10% deposit on an average home for a couple buying together. Respondents also described the policy in emotional terms, calling it “empowering” and saying it would allow them to “take matters into their own hands”.
The proposal is set against the backdrop of what the SMF calls the “Great Wealth Transfer” – an estimated £5.5 trillion expected to be passed down by Baby Boomers. Only a third of adults currently expect to receive an inheritance, and the report warns that without government action the sense of injustice around wealth inequality will only increase. More than two-thirds of 18 to 40-year-olds who do not own a home already believe property ownership is a dead idea for their generation, and the SMF points to widespread over-indebtedness and a lack of capital holding people back from starting a business or forming a family.
Public and expert reaction
The idea has drawn strong support from the age group most likely to be affected. A survey conducted by Opinium for the SMF found that 54% of 25 to 40-year-olds viewed the Citizens Advance positively, with only 6% opposed. Between 50% and 70% said they would actually take the advance, depending on the size of the lump sum, how much state pension they would give up, and any restrictions on spending.
Rachel Vahey, head of public policy at AJ Bell, acknowledged the potential appeal but sounded a cautionary note. “The obvious potential benefit 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,” she said. “The downside is that in doing so they would have one year less of state pension income to rely on in later life.” Vahey added that a high take-up was likely because the money could be spent on anything, not just essentials, and that younger people might be better off building their own retirement savings given the uncertainty around future state pension provisions.
Cost implications for the Exchequer
The SMF estimates that offering the Citizens Advance on the narrowest basis – only to those born from 1998 with ten years of NI credits – would cost the Treasury £1.3 billion in the first year. As younger cohorts become eligible and take it up, the annual cost would rise to around £7 billion before settling at a level that increases in line with the state pension. If the policy were extended immediately to everyone aged 28 to 35, the first-year cost would be approximately £27 billion; opening it to those up to age 40 would push that figure above £45 billion.
The SMF says the aim is for the policy to be net neutral over the long term, with upfront costs offset by savings from the state pension system. But making the lump sum taxable would cut the cost by a third, as would restricting eligibility to people earning below the higher-rate threshold of £50,271. Another option to lower upfront costs would be to limit how the money can be used, for example to housing only.
Rachel Vahey highlighted the cashflow challenge this would create. “A proposal along these lines would present cashflow challenges for the Exchequer, as it would need to pay the money out on demand to anyone who qualifies, whereas at the moment state pension entitlement only kicks in at state pension age,” she said. “Even if early access was offered on the most conservative basis, this would amount to a rise in today’s government spending which would only be offset in decades, potentially creating pressure on the public finances at a time when they are already stretched to breaking point.”
