State pension reform: £140 a week for everyone

State pension reform: £140 a week for everyone
Pensioners are to receive a flat-rate universal retirement payment of £140 a week that will end the injustice of working mothers being penalised for taking a break to raise children, under reforms to be signalled by Iain Duncan Smith today
The Work and Pensions Secretary will pledge to sweep away a host of complex rules and "fundamentally simplify" the basic state pension.

Insiders said Mr Duncan's Smith's intervention represents the start of a Coalition drive to replace the existing state pension regime with a "single tier" retirement payment.

Official estimates suggest that many women who take time out from work for family reasons are left up to £40 a week worse off by rules that base pension payments on National Insurance contributions.

Charities said a universal pension would "reduce fear for those approaching retirement."

In a speech to charity leaders and pension experts, Mr Duncan Smith will condemn the pension system as a bureaucratic mess that leaves many people confused and puts young people off saving.
His long term ambition is to replace it with a single, understandable payment.

The state pension is made up of a basic state pension, based on years of national insurance contributions, and a range of secondary "top-ups", including pension credits.

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

Ministers are known to be considering plans for a universal pension of around £140 a week.

The current system offers a basic pension of £96 a week for a single person.

A range of "top-ups" are supposed to guarantee a minimum income of £132.60, but the complexity of the rules means many people do not get everything they are entitled to.

Advocates of a single-tier pension say the higher cost could be funded by abolishing a range of secondary retirement measures, including means-tested pension credits, which cost taxpayers £6 billion year.

Means-tested retirement rules punish private saving and should be scrapped, Mr Duncan Smith will say in a speech to Age UK. "Too many people on low incomes who do the right thing in saving for their retirement find those savings clawed back through means-testing," he will say. "We have to change this."

The Coalition has already made a number of changes to the rules on private retirement savings, abolishing the default retirement age and introducing automatic enrolment for private pensions.

Government sources said attention was now shifting to state-provided retirement schemes, with reform of the state pension the top priority.

"We have to be prepared to look at the other side of the equation," Mr Duncan Smith will say, promising "a state pensions system fit for a 21st century welfare system, which is easy to understand and rewards those who do the right thing and save".

The Treasury is known to be sceptical about the universal pension plan, questioning whether the change could be made without significant increases in public spending.

Mr Duncan Smith will insist that both he and George Osborne, the Chancellor, are backing the move to simplify state pension rules.

"My Department has been working closely with colleagues at the Treasury on options for reform,” he will say. Under existing rules, eligibility for a state pension is based on the number of years of paid work someone does.

Women often fail to qualify for a full pension because they take time out to raise children.

Last month, DWP figures suggested that leaves women an average of £2,000 a year worse off than men in retirement.

Overhauling the state pension is needed to “leave hope and stability for those generations to come,” Mr Duncan Smith will say.

He will warn: “For the first time in more than 30 years, our children are expected to have retirement incomes which will fail to keep up with average earnings in the rest of the economy. It’s no wonder our children are increasingly cynical about saving.

''And they won’t be able to afford a stable and secure retirement unless we do something radically different.”

Michelle Mitchell, Age UK’s director, said the changes signalled by Mr Duncan Smith would be widely welcomed.

“By developing a system that lays out clearly what people can expect, the Government will reduce fear for those approaching retirement,” she said.

Mr Duncan Smith’s speech comes as the Treasury prepares to publish Lord Hutton’s final report on reforming public sector pensions, which is expected to recommend that millions of state workers should pay more for their pensions.

http://www.telegraph.co.uk/finance/personalfinance/pensions/8367466/State-pension-reform-140-a-week-for-everyone.html

» Egypt Protests Swell Despite Government Steps on Reform
» BlogRush – First Week Summary
» CANADA STOCKS-TSX falls to one-week low as commodities drag
» CANADA STOCKS-TSX falls to one-week low as commodities drag
» Gold Could Possibly Bounce Next Week