Extra cash for two-tier pension

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The Independent Online
MIDDLE INCOME earners will receive a second pension, subsidised by the state, when they retire, as part of a radical shake-up of support for the elderly to be unveiled this week.

Women who take time out of their careers to bring up children - and other carers - will also continue to receive Government money into their pensions in order to emphasise ministers' commitment to the family.

Alistair Darling, the Social Security Secretary, will announce that the Government intends to top up the basic state pension with a further payment designed to stop people relying on means-tested benefit in retirement.

People earning between pounds 10,000 and pounds 20,000 will get extra money back from the state to help them save for their retirement. The Government subsidy - which is likely to take the form of a rebate rather than a straight cash hand-out - will be reduced on a sliding scale as people's salaries increase.

It is also expected that individuals will be required to contribute to these secondary "stake-holder" pensions themselves in order to qualify for the Government boost. Whitehall sources stressed that it was essential that everybody who could do so took responsibility for providing for themselves in old age.

Ministers have backed away from forcing everybody to take out a compulsory stake-holder pension. This was proposed by Frank Field, the former Social Security Minister, but Mr Darling decided it was a tax on the middle classes who would be forced to subsidise the poor.

However, the Government has decided to give far more support to the new second-tier pension than had been expected for those on middle and low income. This will be on top of the means-tested minimum income guarantee, which will be available to the poorest sections in society.

Mr Darling will admit that the new pension will cost millions of pounds in the short term, while the system is being set up. But he hopes that it will lead to a greater independence and reduce the burden on the state. "The aim is to alter the balance between public and private provision," one source said.

Although compulsion across the board has been ruled out, it is likely employees will be forced to participate in occupational pensions if they are available. Mr Darling believes the 6.5 million people who are eligible for employers schemes but do not take them up should have to do so to reduce the amount of Government money spent on pensions.

The priority had been to ensure that people do not have to rely on means- tested benefits when they retire. "We want to get help to those who cannot afford to save, and ensure that those who can afford to save do so," an insider said.