Parliamant, Legislation and Public Sector

New, ‘simpler’ state pension plans announced

Official picture of Iain Duncan-Smith for Your Expert Witness storyExperts in the field of financial advice and pensions are busy digesting details of the plan unveiled by the Government for the 'simplification' of the state pension. The plans – published on 14 January – will see the creation of the 'single-tier' pension set above the means test (currently £142.70) and based on 35 years of National Insurance contributions. It will particularly benefit women, low earners and the self-employed, who under existing rules find it difficult to earn a full state pension, according to the Department of Work and Pensions.

Secretary of State for Work and Pensions, Iain Duncan Smith (pictured), said: "This reform is good news for women, who for too long have been effectively punished by the current system. The Single Tier will mean that more women can get a full state pension in their own right, and stop this shameful situation where they are let down by the system when it comes to retirement because they have taken time out to care for their family."

Minister for Pensions Steve Webb added: "The current state pension system is too complicated and leaves millions of people needing means-tested top-ups. We can do better. Our simple, single tier pension will provide a decent, solid foundation for new pensioners in an otherwise less certain world, ensuring it pays to save."

A number of experts in the field of pension advice were quoted by DWP in support of the proposals.

Responding for the National Association of Pension Funds, its chief executive Joanne Segars declared: "Today's announcement for a simpler, more generous state pension is a much-needed shake-up that will ultimately help millions of pensioners and savers. For the first time in a generation, people will know that it pays to save, and that whatever they put aside won't be eroded by means-testing when they retire."

Dr Ros Altmann, pensions campaigner and director general of the Saga Group, said: "Such radical state pension reform is long overdue and it will be a huge step forward to have a single, flat-rate state pension, without mass means-testing in future. This will make it safer to save, which is essential as auto-enrolment extends across the workforce."

Tom McPhail, head of pensions research at financial and investment experts Hargreaves Lansdown added: For anyone who doubts the importance of joining a pension, the message is now very simple: if you want more than £7,500 a year to live on in retirement, you need to start saving. With millions of employees set to join their company pension in the months ahead, today's announcement delivers the foundation for a solution to the pensions crisis."

Otto Thoresen, the director general of the Association of British Insurers, commented: "A simple approach to state pension provision is a key element in ensuring the success of pension reform. With greater clarity about what the state will provide, and automatic enrolment to encourage people to make additional provision for their retirement through the workplace, there is a real chance to create a savings culture in the UK. We welcome today's proposals to take forward this legislation."

The announcement stressed that all state pension rights accrued under the old system will be recognised, so nobody will lose out on any pension they have earned.