Budget 2011: State pension age could get longevity link

A radical reform of the state pension system is planned which could see the pension age linked to longevity and a £140 a week flat-rate benefit.

In his Budget speech on Wednesday, Chancellor George Osborne said the Government will seek “a more automatic mechanism” for increasing state pension ages in the future by linking the figure to life expectancy.

The Budget document says policymakers are considering a “regular independent review” of longevity changes to ensure that costs are spread fairly between generations.

The Government has already announced an acceleration in the state pension age for men and women to 66 by April 2020.

Standard Life head of pensions policy John Lawson says: “This will hit young people the hardest. A 25-year-old might not receive their state pension until they are 75 under this system. It will mean many face a reality check because people do not realise how long they will have to wait until they retire.”

Osborne also confirmed that the Department for Work and Pensions will shortly publish a green paper outlining plans to introduce a flat-rate, universal state pension of around £140 a week for future retirees.

The Budget document says this is one of a number of reform options being considered.

The Treasury says it will honour con- tributions made into the current system, although details of how people who have contracted out of the state second pension and Serps will be treated have yet to be revealed.

Any proposals will be designed so as not to increase public spending dedicated to state pensions.

Hargreaves Lansdown head of pensions research Tom McPhail says: “The simplicity and clarity of a single state pension will encourage private provision and eliminate lingering concerns over the suitability of auto-enrolment.”