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'Biggest improvement to UK State pension in our lifetime': imminent
By Ian CowieYour MoneyLast updated: March 4th, 2011
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The “biggest improvement to State pensions in our lifetime” will be unveiled by the Government soon, possibly before the Budget on March 23, according to experts involved in official consultations.
They point to a flurry of recent announcements which seem to pave the way toward a higher minimum State pension for everyone with a full National Insurance Contributions (NICs) record. Surprisingly, experts say this should not be expensive in the short-term because of reduced rebate payments to people who have opted out of the State Second Pension (S2P) and lower means-tested benefits claims.
Another factor is growing awareness in Whitehall that action is needed to prevent its National Employment Savings Trust (NEST) turning into the next pensions mis-selling scandal. Every employee who does not already have a pension will automatically have some of their pre-tax
pay deducted to fund contributions to NEST from 2016.
But, as the Telegraph revealed five years ago, auto-enrolment into NEST will strip millions of low earners of some or all of their entitlement to means-tested benefits and give rise to massive claims for compensation. Now experts say a higher minimum State pension avoids that risk.
Dr Ros Altmann, director general of Saga, said: “We are about to get the £140 a week minimum State pension. This will replace the S2P and the Basic State Pension (BSP), which will be rolled into one flat-rate payment for everyone with full NICs records.
“All the pieces now seem to be in place and it’s just a question of timing. We have just had the Office for Tax Simplification coming out and recommending ending contracting out of S2P for all pension schemes from 2012. That would fit beautifully with a flat-rate state pension and would also bring in a few billion pounds of revenue to the Treasury because it will no longer need to pay NICs rebates to people who opt out of the S2P.
“Earlier this week, we had the Department for Work and Pensions (DWP) saying that it was finding the complexity of giving forecasts for S2P and the State Earnings Related Pension Scheme (SERPs), which S2P replaced, plus graduated pensions far too complex.
“DWP figures show that women’s average State pension entitlements total about £110 per week, compared to £160 per week for men. So introducing a minimum State pension of £140 a week will be the biggest improvement to State pensions in our lifetime and especially beneficial for women.”
Official estimates suggest that about 12m employees working for 1.1m employers will be auto-enrolled into NEST because they currently have no pension savings at all. Steve Bee of Paradigm Pensions said: “The only way that these important reforms can succeed is if everyone gets a decent, subsistence level of State pension so that savings made for private pensions are not devalued by loss of means-tested support.
“I applaud the Government’s current plan to increase the State pension to a level that will make means-testing for the elderly a thing of the past. It will, I think, come to be regarded as the most significant reform of our pension system for generations.
“The Government simply has to make it pay to save in a pension. People need to be given a guarantee that every £1 invested in a pension will make them at least £1 better off than non-savers.”
Tom McPhail, pensions expert at Hargreaves Lansdown, added: “Reform of the State pension is the keystone which will ensure that the UK’s overall pension system can bear the weight of our retirement needs and expectations.
“At present we have a complex system which creates perverse disincentives to save. A universal state pension would address this problem and at the same time encourage everybody right across the income scale to save in a private pension to top up their State entitlement.”
By Ian CowieYour MoneyLast updated: March 4th, 2011
3 CommentsComment on this article
The “biggest improvement to State pensions in our lifetime” will be unveiled by the Government soon, possibly before the Budget on March 23, according to experts involved in official consultations.
They point to a flurry of recent announcements which seem to pave the way toward a higher minimum State pension for everyone with a full National Insurance Contributions (NICs) record. Surprisingly, experts say this should not be expensive in the short-term because of reduced rebate payments to people who have opted out of the State Second Pension (S2P) and lower means-tested benefits claims.
Another factor is growing awareness in Whitehall that action is needed to prevent its National Employment Savings Trust (NEST) turning into the next pensions mis-selling scandal. Every employee who does not already have a pension will automatically have some of their pre-tax
pay deducted to fund contributions to NEST from 2016.
But, as the Telegraph revealed five years ago, auto-enrolment into NEST will strip millions of low earners of some or all of their entitlement to means-tested benefits and give rise to massive claims for compensation. Now experts say a higher minimum State pension avoids that risk.
Dr Ros Altmann, director general of Saga, said: “We are about to get the £140 a week minimum State pension. This will replace the S2P and the Basic State Pension (BSP), which will be rolled into one flat-rate payment for everyone with full NICs records.
“All the pieces now seem to be in place and it’s just a question of timing. We have just had the Office for Tax Simplification coming out and recommending ending contracting out of S2P for all pension schemes from 2012. That would fit beautifully with a flat-rate state pension and would also bring in a few billion pounds of revenue to the Treasury because it will no longer need to pay NICs rebates to people who opt out of the S2P.
“Earlier this week, we had the Department for Work and Pensions (DWP) saying that it was finding the complexity of giving forecasts for S2P and the State Earnings Related Pension Scheme (SERPs), which S2P replaced, plus graduated pensions far too complex.
“DWP figures show that women’s average State pension entitlements total about £110 per week, compared to £160 per week for men. So introducing a minimum State pension of £140 a week will be the biggest improvement to State pensions in our lifetime and especially beneficial for women.”
Official estimates suggest that about 12m employees working for 1.1m employers will be auto-enrolled into NEST because they currently have no pension savings at all. Steve Bee of Paradigm Pensions said: “The only way that these important reforms can succeed is if everyone gets a decent, subsistence level of State pension so that savings made for private pensions are not devalued by loss of means-tested support.
“I applaud the Government’s current plan to increase the State pension to a level that will make means-testing for the elderly a thing of the past. It will, I think, come to be regarded as the most significant reform of our pension system for generations.
“The Government simply has to make it pay to save in a pension. People need to be given a guarantee that every £1 invested in a pension will make them at least £1 better off than non-savers.”
Tom McPhail, pensions expert at Hargreaves Lansdown, added: “Reform of the State pension is the keystone which will ensure that the UK’s overall pension system can bear the weight of our retirement needs and expectations.
“At present we have a complex system which creates perverse disincentives to save. A universal state pension would address this problem and at the same time encourage everybody right across the income scale to save in a private pension to top up their State entitlement.”