Daily Express – Radical State Pension Reform at last

by Dr. Ros Altmann

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The Government’s long-awaited proposals for reforming the state pension have been unveiled at last. We all know there is a pensions crisis and that, even as the first baby-boomer hits 65 this year, we still have a state pension system that is not fit for purpose. Designed over half a century ago, it is not providing decent pensions. It has been tinkered with and patched up so many times that it has become a complex web of different parts that almost nobody understands.

Interestingly, the Government is consulting on two proposals, one of which retains the complexities and inadequacies of the current state pension system, albeit with a few improvements that will not really have major benefits for decades. The other is a radical overhaul of the current system, bringing it into the twenty first century.

This radical option, which is clearly preferred by Pensions Minister Steve Webb, would mean future generations of pensioners will have a system that is decent, simple and clear. The state pension will provide a basic minimum of £140 a week (in today’s money) by the time it comes in. And that’s it. If people want or need more, they will have to either save or keep working if they can, to supplement what the state can afford.

This proposal could end the discrimination in our current system against low earners, women, carers and the disabled. It would be a major boost for pensioner couples, who would each have a pension in their own right, giving them a total of £280 per week. It would finally end the mass means-testing of pensioners that makes it unsafe to encourage low or moderate earners to save in a pension scheme.

This is the kind of brave change we have needed for years, but Governments have consistently shied away from grasping the nettle. The drawback, however, is that the Government cannot afford to include existing pensioners in the new arrangements. Pensioners in the old system will understandably feel they are being left behind, but it is clearly vital that we have a sustainable pension system for future generations. I hope that the Government might find a way to improve things for existing pensioners too.

This new system would be a real break from the past, sweeping away the old complexities. Instead of a Basic State Pension, Second State Pension and a host of other bits of pension, plus means-tested Pension Credit, there would eventually be one flat-rate payment for the future.

Anyone with a full National Insurance record would qualify, as long as they had at least seven years of contributions. There would be no extra cost because of savings from increasing the state pension age in future, perhaps in line with rising life expectancy, and ending the Savings Credit.

Such radical reform would finally put state pensions on a sustainable path and make it safe to automatically enrol all workers into a pension scheme as planned from 2012.

I hope that we can find a way to move forward with the radical changes that are so long overdue.