Compulsory second pensions on agenda as means-testing ends

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The Government is to shift away from a system of means-testing for pensioners and is ready to consider compulsory second pensions for all, ministers signalled yesterday.

The Government is to shift away from a system of means-testing for pensioners and is ready to consider compulsory second pensions for all, ministers signalled yesterday.

In the short term, ministers want to reduce the stigma attached to claiming the Pension Credit, which deters some old people from claiming it. They plan to bring in an "automatic" system under which the top-up payments would be made without the need for repeated form-filling or telephone applications.

The promise was made privately by ministers to trade unions when they negotiated a wide-ranging deal on workplace rights and other issues in July. The so-called "Warwick agreement", struck during late-night bargaining at Warwick University, will be incorporated in Labour's general election manifesto. Ministers promised steps to "remove old-style means-testing" and to make Pension Credit "more automatic" by making greater use of information held on pensioners' incomes by government departments and local authorities.

Labour sources denied that the pledge heralded a long-term move away from the means-testing approach of the Chancellor, Gordon Brown, which has reduced pensioner poverty but may deter younger workers from saving for their retirement. They insisted the system of "targeting" help on the poorest pensioners would continue.

The Warwick agreement also said the Government would consider legislation on compulsory pension contributions, saying it may be necessary to "move beyond" the current voluntary system. But it said the decision would depend on the final report in a year from the independent Pensions Commission chaired by Adair Turner, which produced its interim report on Tuesday.

Alan Johnson, the Secretary of State for Work and Pensions, gave clues to the Government's approach yesterday in a Commons debate on the pensions crisis. He hinted at his support for the Liberal Democrats' proposal of a "citizen's pension" based on residency rather than the current system linked to national insurance contributions, which deprives many women of the full basic state pension.

Mr Johnson said a universal pension was a "really interesting" idea that deserved much closer examination.

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