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Govt to pledge “fundamental simplification” of state pension

Iain Duncan Smith will today pledge to “fundamentally simplify” the basic state pension as he paves the way for the introduction of a flat rate basic payment for future retirees.

The Work and Pensions Secretary will say the current system, which offers around £96 per week for a single pensioner along with means-tested top-up payments, penalises low-income savers.

Duncan Smith (pictured) will promise “a state pensions system fit for a 21st century welfare system”. He will say reform is necessary to give “hope and stability” to future generations of savers.

An announcement on details of the reforms, which has been delayed amid Treasury concerns over cost and complexity, is now expected in the Budget on March 23. This follows a recommendation from the Office of Tax Simplification that contracting-out from defined benefit pension schemes should be abolished from 2012, saving the Treasury an estimated £9bn.

Hargreaves Lansdown head of pensions research Tom McPhail says: “This is the keystone which will support the weight of millions of people’s retirement provision. Without this reform there would be a risk of confusion, disengagement and missed opportunities.

“A simple, universal state pension will minimise the risk of people opting out of the auto-enrolment process. It will also ensure that everyone has a clear expectation of what the state will deliver for them, helping them to plan how much they need to save on top in order to deliver the retirement income they aspire to.”

Following confirmation in October that the Government planned to abolish means-testing for future retirees, experts warned any such reform would face difficulties accommodating people who had contracted-out of the state second pension or Serps.


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There are 6 comments at the moment, we would love to hear your opinion too.

  1. Here we go again!

  2. This is a good idea but a better one would be that this system if and when introduced didn’t penalise those who put money away in whatever form to supplement their retirement income.

    I am of course intimating that the means tested benefit system is what needs to be looked at.

    It cannot be right that those who save what they can when they reach retirement end up no better off than those who do not save at all.

    Simply, those who cannot look after themselves shouild be looked after, those who can look after themeselves and do so should not be penalised.

    The other category is where the problem has always been.

    The government need to inform and educate with conviction and vision.

  3. Oh Dear,
    As soon as I see a two word phrase from Politician that claims to ”fundamentally simplify” , you might as well reach for the tippex and substitue the words ‘Totally’ & ‘Complicate’

    Remember the ‘simplification ‘ that A day brought us? Ears and Pigs would be more apt words,

    The Basic State Pension is simple enough, and doesn’t punish low income savers,

    It’s simple enough to follow,–people can qualify by working and contributing through NI, or being genuinely exempted for all manner of reasons.

    It’s £97.65 per week in the current financial year,- if you think you will need more than that at retirement, (regardless of what you earn now,) then make some sacrifices, and save some cash, into one of the VAST array of pension savings schemes available, with fantstic incentives such as tax relief on what you pay in, and tax free growth.

    If you’re not prepared to make any sacrifice now, then you won’t have a particulalry comfortable retirement.


  4. If any government wants to make a real difference then make the state pension tax free.

  5. Hi Allan,
    Good idea about the tax free but the problem is most pensioners think it is already tax free and cannot understand why the tax on their private pensions are so high!!!!

  6. No doubt there will be a corresponding reduction in contracted out benefits?

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