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MM Leader: Radical route is right way for reforms

The Government’s state pension reforms, unveiled this week, look set to create a solid and stable platform for individuals to save for their retirement.

Details about the proposals have been dripped into the media since last year but it is worth reiterating the huge step forward that they should represent.

The current means-tested system of pension payments, focusing Government help on the most needy, was an appropriate sticking plaster to address the pensioner poverty that the previous Labour Government inherited.

But Labour failed to appreciate that the time had come to rip off the plaster and consider the need for more radical reform.

Under the current system of state pension provision, the upcoming auto-enrolment reforms and intro – duction of Nest would be undermined. At present, there is a huge disincentive to save, created by the interaction between means-tested benefits and long-term savings.

Many individuals, particularly the low to middle-earners that the Government wants to save more, are not sure to benefit fully from what they were accruing.

The reforms must be fair and there are likely to be howls of protests from those who fail to benefit because of when the new rules are introduced. But offering the new flat-rate higher state pension to all pensioners would have been too expensive and the Government must ensure these reforms can be paid for.

Proposals for a contracting-out offset and measures to ensure money accrued through Serps and the second state pension will be honoured should ensure people do not either gain too much or lose out on what they are owed.

The Government’s green paper puts forward two options for reform. The radical proposal for flat-rate reform has been heavily trailed and hailed by both pensions minister Steve Webb and Work and Pensions Secretary Iain Duncan Smith. The surprise second option is an acceleration of the existing reforms so the second state pension becomes a flat rate by 2020.

This second option is likely to leave in place many of the complexities and disincentives to save that Webb has stressed need to be removed to ensure the auto-enrolment reforms are a success.

We strongly urge the Government to keep its eye on what it has said it wants to achieve from state pension reform and push ahead with the option for a radical flat-rate single state pension.

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