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PPI proposes solution to means-test

The Government is being called on to introduce a “pension income disregard” to overcome the disincentive to save in personal accounts created by means-testing.

A report by the Pensions Policy Institute, commissioned by BC&E Benefit Schemes, suggests disregarding the first £12 a week of private pension income in calculating entitlement to means-tested benefits.

It says a single person could save up to £6,000 in a retirement fund without this being taken into account in calculating entitlement to means-tested benefits. It concludes that all the people at highest risk of losing out are likely to be better off under this system than if they were not saving. The report calculates that the “pension income disregard” would add around £600m to the cost of means-tested benefits in 2012 when personal accounts are introduced.

Last week, Conservative Shadow Work and Pensions Secretary Chris Grayling broke the political consensus over pensions by insisting the Tories will not vote for the introduction of personal accounts unless the issue of means-testing is addressed by the Government.

PPI research director Chris Curry says: “This research shows the introduction of a pension income disregard would improve returns from saving in a personal account for people who would otherwise be at risk of personal accounts being unsuitable. The disregard would increase Government expenditure on means-tested benefits for pensioners by around 4 per cent in 2012.”

B&CE deputy chief executive John Jory says: “This work shows that the cost of introducing a pension income disregard is small when one takes into account the huge difference it will make to the clarity of message that can be given to people when personal accounts are introduced. The percentage of people who stay opted in is likely to be much higher.”

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