Radical State Pension reform proposed at last
by Dr. Ros Altmann
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It seems that the Government may finally be getting to grips with the inadequacies of UK state pensions.
For years, Governments have tinkered with our state pension system, constantly adding to its complexity, while failing to address the fundamental problems. We have just about the lowest state pension in the developed world – and it is by far the most complex. Most people have no idea what state pension they will be entitled to.
This is because anyone retiring at the moment can receive many different elements of State Pension. The Basic State Pension, a State Second Pension, plus some State Earnings Related Pension (SERPS) and Graduated Pension, each having different qualification criteria and rules. And if all these are not enough to lift them out of poverty, nearly half of pensioners can claim a complex, means-tested Pension Credit, which consists of a Guarantee Credit and a Savings Credit. What a mess!
Such heavy reliance on pensioner means-testing is a fundamental problem. It undermines private pension saving, because around half of pensioners could find their private pensions penalised, or taken away altogether, when claiming Pension Credit, so many people may find pensions are not suitable for them.
As the Government is planning to automatically enrol all workers into a pension scheme from 2012 and has established a new national pension scheme (called NEST) specifically targeted at low to moderate earners, there is a risk that these workers would ultimately lose part or all of their pensions in the means-test. So far, politicians have pretty much ignored the problem, but it is really important that the Government sorts this out.
At last, it seems as if they are intending to do just that.
The Government wants to introduce a flat rate State Pension, combining the Basic and Second State Pensions into one payment of a minimum £140 a week (the full Basic State Pension is currently just over £100 a week). Everyone with a full National Insurance record would automatically get at least £140 a week pension, so most women would receive a much better state pension, without having to claim Pension Credit and without penalty to their private savings. Imagine it – one decent, simple flat-rate state pension that everyone could understand, treating women fairly and ending mass means-testing of pensioners.
This could be the best news for pensions in years!