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Wide differences revealed in pension reform choices

The Government’s flat-rate state pension proposal would lead to lower maximum state pension payments than an acceleration of current reform plans for a two-tier flat-rate structure, according to the Pensions Policy Institute.

Last month, pensions minister Steve Webb outlined two options for fundamental reform of the basic state pension.

Option one would involve an acceleration of the existing reform agenda, so the state pension evolves into a two-tier flat-rate structure by 2020. Under current plans, this would happen in the mid-2030s.

Option two, described by Webb as the “more radical” reform option, would see the introduction of a single tier flat-rate pension of around £140 per week. In the most in-depth analysis of the two options to date, the PPI says the highest pension an individual could receive under option one in 2072, in 2011 earnings terms, would be £203. Under option two, the maximum state pension would be just £165. The PPI says if there are no reforms to the current pension system, the maximum possible total pension in 2072 would be £207 a week.

It says option one would see the upper limit for state second pension accrual cut from £40,040 to £14,400 by 2020, leaving a flat-rate S2P benefit of £1.60 per week for each qualifying year.

For a person with a full working life of 52 years under this system, this would mean a S2P benefit of £83.20 per week.


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