Saga Magazine - Pension reform desperately needed in 2010

by Dr. Ros Altmann

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The UK state pension is far too low, far too complex and undermines both private savings and later life working. It is not fit for purpose. It does not provide an adequate social welfare base on top of which people can plan additional private income for their retirement.

At the moment, a full Basic State Pension (BSP), after a lifetime of National Insurance contributions, provides just £95.25 a week. Some workers also receive a Second State Pension (S2P) but both BSP and S2P have been substantially reduced over the years.

The constant cuts of state pension levels, policy changes and failure to ensure women accrue full pensions due to their different working patterns, have resulted in half of pensioners needing the third element of the state pension system - the means-tested Pension Credit. This pays £130 a week to anyone over age 60, even if they have never contributed to National Insurance.

So the Government pays £97 a week after 44 years of national insurance contributions but £130 to people who have never contributed - as long as they have little or no other income. So those with private pensions or part-time earnings are penalised by the state pension system - which is a major disincentive to self-support in old age.

We must radically reform our state pension, so that it provides a minimum social welfare underpin for pensioner incomes.

No more tinkering with our outdated system. Let's have a flat-rate resident's pension, around £140 a week, for all older pensioners, without means-testing penalties. This would treat women fairly and allow everyone to know what state pension they will receive. Such radical reform of the state pension is affordable and would provide a basic minimum state pension in future, on top of which people can safely save or work longer to avoid an impoverished old age. The sooner we ensure such reforms, the better.


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