Call for a flat-rate state pension

Wednesday, 29 March 2006 12:00

Creating a simple flat-rate state pension should be the key starting point for the reform of pensions.

Pensions experts believe that the current ‘complex’ state system is failing to guarantee that all older people have sufficient basic income.

A report by the Pensions Policy Institute (PPI), which canvassed the views of 80 pension experts, criticises the current system of basic state pension, earnings related state second pension, pension credit and contracting out.

Alison O’Connell, director of the PPI, said saving for retirement would be so much clearer if the state just delivered “a single state pension that provides basic income as simply as possible”.

“There is no doubt that every pension expert wants to see change in state pensions”, she added.

“For most pension experts, a better state pension means: a structure that people can understand, providing full benefits to a wider range of individuals and a high enough level of benefit so that means-testing for basic income is reduced.”

The report also reveals that most pension experts would like to see reform go further than that called for by the Pensions Commission, which published its final report in November.

With the government preparing a white paper on pensions, experts believe it should aim to reduce the current extent of means-testing, rather than trying to stop it spreading as suggested by the Pensions Commission.

They would also like to see the government find a new, fairer way of giving tax incentives for saving.

But overall, they believe that the best way to create stability in the system is to make it as simple and transparent as possible.

“This project suggests that as the government prepares its white paper it should be bolder than the Pensions Commission’s proposals,” Ms O’Connell concluded.

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