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.