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Public consultation backs single pension

Radical plans to create a flat-rate £140-a-week state pension have been strongly supported in a public consultation.

Over three-quarters of organisations favoured the creation of a single-tier pension in principle, which would combine the basic state pension and the state second pension.

The current basic state pension is £102.15 a week for men and women but this can be topped up with pension credit to a minimum income of £137.35.

The Government wants to simplify the pension system and said that a weekly £140 flat rate would significantly reduce the need for low-income pensioners to apply for credit.

Ministers received around 1,600 responses from individuals and 102 from stakeholder groups following a 10-week consultation.

Businesses, voluntary sector organisations, pensions administrators and members of the public were asked whether they would prefer the creation of a single-tier pension or an accelerated transition to a two-tier flat-rate pension.

Pensions minister Steve Webb said: "In spite of our best efforts to encourage take-up, pension credit has failed to reach over a million low-income pensioners who are entitled to help.

"What we want to do is reform to create a simpler state pension that won't leave people relying on means testing to make ends meet.

"A simple, decent state pension that is easy to understand would give people more clarity and certainty about what they will get from the state.

"It is this clarity and firm foundation that will help people make decisions about saving for retirement - a crucial step as we prepare to enrol 10 million people into workplace savings from 2012."

The Government will consider all the feedback to the consultation and bring forward more detailed proposals for state pension reform.

Ros Altmann, director general at Saga, said: "The Government identified four guiding principles for state pensions that are fit for the 21st century.

"They were fairness, simplicity, affordability/sustainability and encouraging personal responsibility.

"It is only the flat rate simple state pension that will achieve these objectives in the future.

"Any other system that retains or tinkers with the current pension system without radical overhaul will not be simple, will not be sustainable, will not encourage personal responsibility and will retain many unfairnesses such as the unfair system of 'contracting out' of state pensions which allows some workers to pay far less national insurance than others even in publicly funded, unfunded, pension schemes.

"Ending contracting out could save large amounts of money."