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Report rejects scrapping S2P and means-testing

The Pensions Commission has rejected the idea of scrapping S2P and means-testing to boost basic state provision.

Head of the commission Adair Turner says introducing a unified pension at a high enough level to eradicate both means-testing and the second state pension would require an immediate and significant increase in public expenditure and tax increases.

The commission proposes building on the current two-tier system by creating a system with two flat-rate pensions, with the basic state pension linked to average earnings’ growth rather than inflation.

Despite reports that Chancellor Gordon Brown has already rejected the earnings’ link as unaffordable, the commission proposes to offset increased costs by gradually raising the state pension age to 66 in 2030, 67 by 2040 and 68 by 2050. The staggered increases in the retirement age would tie in with predicted increases in life expectancy.

The report says future entitlement to the basic state pension should be universal and based on residency rather than on contributions. According to Pensions Policy Institute statistics, over five million people currently do not qualify for the basic state pension.

Aifa director general Chris Cummings says: “Increasing the retirement age makes sense, particularly as the Government is encouraging more people to go to university and start work later.”

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