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PPI proposes solution to personal accounts means-testing dilemma

The Pensions Policy Institute has proposed a “pension income disregard” to overcome the means-testing problems many commentators believe to be the major barrier to the successful implementation of personal accounts.

The respected independent organisation has released a study examining the effect of the introduction of a pension income disregard, which would allow a single person a pension pot of £6000 before means tested benefits were affected.

The report, “Increasing the value of saving in Personal Accounts: rewarding modest amounts of pension saving”, calls for the first £12 per week of private pension income to be disregarded in any calculations of means tested benefits entitlements.

The PPI says the disregard would increase Government expenditure on means-tested benefits for pensioners by around 4 per cent in 2012.

B&CE, who commissioned the report, says although means tested benefits have lifted many of today’s pensioners out of poverty, the hurdle it creates in trying to encourage more people to save towards their retirement needs to be addressed.

The Conservatives and LibDems have warned the Government that unless issues with the interaction of means-testing are dealt with they are unlikely to back its plans for the scheme.

Pensions Policy Institute research director Chris Curry says previous PPI research has identified that some people may not benefit from their savings after the introduction of personal accounts.

He says: “While many people may benefit from the Government’s proposal to introduce Personal Accounts in 2012, some people, for example, those who rent in retirement and today’s older people with low earnings and no other savings, may not receive the full benefit of their saving as they may lose entitlement to means-tested benefits.

“This research shows that 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.”

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