State pension to be simplified, says Iain Duncan Smith

Published on Tuesday, 08 March 2011 13:26
Posted by Scott Buckler

The government will "fundamentally simplify" the pensions system so that it "pays to save" for retirement, Iain Duncan Smith is to say


The work and pensions secretary will indicate a move towards a flat-rate payment for men and women.This will remove disincentives for low earners to build up savings and ensure fairness for those who take time off to raise children, the government says.

There is speculation the basic state pension could be set at £140 a week.

But ministers have not confirmed this and Mr Duncan Smith is not expected to set a figure in his speech to Age UK.

The current full state pension is £97.65 a week for single men and women and £156.15 for couples. These sums are topped up for the poorest in society to provide a guaranteed minimum income of £132.60 for single people and £202.40 for couples, through the means-tested pensions credit.

In his speech, Mr Duncan Smith will say the system is too complex and say means tests discourage many people from saving at all for retirement.

'Crystal clear'
He will argue that changes will ensure mothers who currently lose out on their pensions for having taken a career break to raise their children do not lose out later in life because of a lack of National Insurance contributions.

This reform would be paid for, in part, by savings in administration costs when means testing is scrapped.

Mr Duncan Smith is expected to say: "We have to fundamentally simplify the system. And we have to make it crystal clear to young savers that it pays to save."

He will warn that younger workers are becoming "increasingly cynical" about saving and will not be able to afford a "stable and secure" retirement unless the government does "something radically different".

The state pension age is already set to be increased in response to people living longer, with the default retirement age being abolished in October.

The government has moved to require employers to enrol staff automatically in private pension schemes from next year to boost individual savings for retirement.

But Mr Duncan Smith will say: "Auto-enrolment cannot solve the savings challenge on its own, and we have to be prepared to look at the other side of the equation. We now have to look at the state pension.

"The state pension system is so complex that most people have no idea what it will mean for them now and in their retirement.

"And too many people on low incomes who do the right thing in saving for their retirement find those savings clawed back through means-testing. We have to change this.

"We have to send out a clear message across both the welfare and pension systems: you will be better off in work than on benefits, and you will be better off in retirement if you save."

Chancellor George Osborne announced in last autumn's Spending Review that the state pension age for both men and women would rise to 66 by 2020 - six years earlier than had been planned by the Labour government.

For Labour, shadow pensions minister Rachel Reeves said: "Vague promises of jam tomorrow don't do anything for pensioners today. With higher VAT and fuel prices rising, they want help now.

"Labour supports a fairer, simple state pension system. But we want to see the detail - who will be better off and who worse off under this system?"

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