The Department for Work & Pensions and the Treasury are in discussions over plans for a basic universal pension of £100, with an additional £40 for people who have never contracted out of the state second pension or Serps, Money Marketing understands.
In a speech on Tuesday, Work and Pensions secretary Iain Duncan Smith (pictured) signalled the Government’s intention to “fundamentally simplify” the basic state pension. An announcement on the proposals is expected in the Budget on March 23.
Legal & General pensions strategy director Adrian Boulding says the Government could reduce the state pension above £100 by £1 for every year a person has contracted out.
He says: “The system has got to be sufficiently simple so that people can understand it. The DWP is going for a big simplicity drive but it must strike a balance between fairness and simplicity.
“I think having a £100 basic payment for all, with an extra £40 subject to straightforward reductions if you have been contracted out, would fulfil that brief. If you try to make it complicated and make sure nobody loses out, then you lose the simplicity and the understanding as a result.”
Labour Shadow pensions minister Rachel Reeves warns that some people could be left worse off if the Government brings forward proposals to introduce a universal state pension of £140 a week.
She says: “The increase in VAT, fuel prices and lower returns on savings are not going to be helped by these potential changes. If the payment is £140 a week from 2014, as has been reported, people will get less than the current level of pension credit of £132.60 if you uprate it in line with inflation.”
Hargreaves Lansdown head of pensions research Tom McPhail says: “Those people who have been contracted out seem fairly likely to see a deduction from their state pension entitlement.”