Ian Duncan Smith to outline state pension plan
Monday 04 April 2011
Iain Duncan Smith will today outline plans to create a flat-rate £140-a-week state pension after condemning the existing system as complex and in "crisis".
The Work and Pensions Secretary will give MPs details of radical changes designed to encourage more people to save for their retirement.
Pensioners currently receive at least £97.65 a week but this will rise to at least £140 at current prices. Under the proposed reforms, means-tested credits, which see nearly half of all OAPs claim £132.60 a week, will be scrapped in about five years' time as the Government looks to simplify pensions in a similar way to the benefits system.
Interviewed on Sky News' Murnaghan programme yesterday, Mr Duncan Smith said pension credits currently acted as a "disincentive" to save while the Government has moved to require employers to enrol staff automatically in private schemes from next year to boost individual savings for retirement.
He said that in order to meet European regulations, men and women would retire at the same time. The age would rise to 66 for both sexes by 2020 - a move which could bring £14 billion into the Treasury's coffers.
"What we have said is that two things exist," Mr Duncan Smith said. "The first is that it's so complicated that nobody understands it and (they) need to get this right for an income in retirement.
"The second thing is that far too few people are saving as a result. Seven million people don't save at all towards their pensions right now.
"The third element, and really where it's quite critical, is that it acts as a disincentive to save because right now nearly half of all pensioners are on a pension credit top-up which means basically it's a crisis so we need to change that."
He added: "The key problem for us is that young people growing up now are going to take the burden of debt that we owe right now. They will have to pay for their grandparents and parents in retirement, and they will have to save. We therefore have to help them to be able to save properly."
Asked about the Government's plans for age of retirement, Mr Duncan Smith suggested that most people did not want to retire at 65.
"The last government already set projections to 67, 68 ... and we are revising those to look again," he said, "There is no question, no point in hiding the fact that retirement will have to move over a period, obviously to help people adjust, for two reasons.
"First of all, because we are living longer, most people don't feel like retiring at 65. We have many, many thousands now choosing to work beyond 65 and that's why we lifted that thing called the default retirement age, where you could be forced into retirement."
Today's Green Paper proposals are likely to benefit mothers who currently lose out on their pensions for having taken a career break to raise their children.
Pension experts have warned that unless a universal state pension is introduced the Government could face a massive pensions mis-selling scandal in future years.
The problem is that people on low incomes, who saved only modest amounts towards their retirement, could find that they miss out on means-tested benefits that they otherwise would have qualified for, meaning they would have been better off not saving into a pension at all. The changes should mean that it always pays to save for your retirement.
Pensions Minister Steve Webb said the system needed to be reformed to meet the demands of an ageing population and warned that people would have to work for longer and save more.
"Tomorrow's pensioners do face a very different world," he told the BBC Radio 4 Today programme.
"They will, on average, be working for a lot longer, they will be retired for longer, they won't on the whole have final salary guaranteed pensions in the way that perhaps their parents did.
"We therefore need a simpler, clearer foundation because more of them will now be asked to save for their retirement."
Mr Webb, speaking on BBC Breakfast, described the new flat rate as a "single, simple, decent" state pension but not a "king's ransom".
"I think most people find pensions utterly baffling," he said.
"What we are asking people who are at work today to do is make decisions about saving for their future when they have no idea really what they are going to get.
"Our idea is for people who are at work today - the pension they get when they retire will be a single, simple, decent state pension, it won't be a king's ransom, we're not throwing money at it, but we're simplifying the system so that people can save today and know they will be better off when they make that sacrifice."
He said women who had taken time out of work to care for children would be winners under the new system.
"One of the groups who lose out at the moment through pensions are women, particularly those who have spent time out of work looking after children," he said.
"They very often find they get a lower state pension. This new system will change that. It will mean that time at home, bringing up a family, caring for an elderly relative will be just as valuable as a paid job and I think that is the right way to go."
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