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Webb at the forefront of a revolution

After years of watching our pension system falling apart, it seems that pensions minister Steve Webb may finally be getting to grips with the inadequacies of the UK state pension. If the reports are accurate, a pension revolution is about to occur.

For years, government has tinkered with our current inadequate state pension system, adding to its complexity while failing to address the fundamental problems associated with mass means-testing of pensioners. As the OECD recen-tly pointed out, the UK has just about the lowest state pension in the developed world – and it is by far the most complex. Most people have no idea what state pension they will be entitled to.

The fundamental problem is that our state pension system undermines private pension saving. If around half of pensioners end up entitled to means-tested benefits, their private pensions will be penalised and some may see their whole private pension effectively taken away.

As we are about to launch a national system of auto-enrolment and a new national pension scheme (Nest) specifically targeted at low to moderate earners, we would be at risk of putting these workers into a pension which would ultimately be partly or totally removed from them by the means test.

It is those low to moderate earners who are most likely to lose out and they will be unable to save enough to float themselves off means testing.

Therefore, in order to alleviate some of the problems of auto-enrolment and the official Nest system, it is important that the Government sorts this out. At last, it seems it is intending to do just that.

The idea is to introduce a flat-rate state pension which combines the basic and second state pensions into one payment of £140 a week. This is above the pension credit level of just over £132 a week and well above the full basic state pension of just over £97 a week.

Everyone would automatically get this higher pension, so most women would receive a much better state pension without having to claim pension credit and without penalty to their private savings. I assume there will be some transitional protection for anyone whose state pension would have been above that level.

Imagine it – one decent, flat-rate state pension that everyone could understand. This would be the best news for pensions in years.

Dr Ros Altmann is director general at Saga

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