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Flat-rate pension benefits outweigh the problems

Not many more details but a great deal of speculation has emerged since the Government announced plans last week for a £140 a week flat-rate state pension.

Debate has focused on what will happen to those who have contracted out and those who have built up entitlements which would have seen them receive far more than £140.

A few commentators have suggested these added complications may undermine the move to a simplified system but this need not be the case.

It is likely that the Government will take into account the number of years contracted out or the sums accrued when calculating the flat-rate benefit. Similarly, there is likely to be a system to boost the pensions of those who would have been entitled to more much than £140.

The costs involved in introducing a flat-rate pension are considerable and the state pension age may rise faster than previously suggested. There will inevitably be winners and losers in terms of when it is introduced.

There are certainly hurdles to overcome but the benefits of a flat-rate pension are well worth it.

The Government ensured the details of the higher state pension were released before last week’s review of Nest and auto-enrolment was published. Nest’s possible interaction with mean-testing threatened to undermine the scheme before it began and the £140 a week flat-rate pension will act as a solid foundation needed to give Nest a chance to succeed. A simplified system, well understood by consumers, is likely to encourage more people to save.



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