Liberal Democrat Pensions Minister Steve Webb, the man who has already delivered the “triple lock” system for ensuring a decent annual rise in the State Pension, writes in today’s Telegraph about the Coalition’s plans to simplify pension provision and ensure that the basic state pension increases from £107 to £144 from as soon as 2017.
First, he outlined the problems with the complexities of the current system:
In Britain today, we have not one but two state pensions. The first is a basic state pension based on 30 years of National Insurance contributions, with complex rules for people who are divorced or widowed. Within it, there are also special arrangements for married women dating back to a post-war model when the old-fashioned assumption was that men needed pensions where women simply needed a husband.
The second is a state earnings-related pension, previously known as Serps, but now called the State Second Pension. This scheme is fiendishly complex, with variable amounts paid out in retirement according to past earnings, but with the chance for people to opt out into a workplace pension scheme, known as “contracting out”.
To make matters worse, many people don’t actually get enough to live on from these two pensions combined, so we have an additional system of mass means-testing known as the pension credit. Thanks to a complicated and divisive system introduced by the last government, millions of pensioners require top-up amounts to get their pension up to a decent minimum. However, this means that those with small amounts of additional savings often find themselves only slightly better off than someone who never bothered to save.
He went on to say how the new system would work:
The basic idea is that someone starting work under the new “single tier” pension rules will build up just one state pension. It will be set above the level of the basic means test – currently £142.70 per week – and the full rate will be payable for 35 years of National Insurance contributions (NICs). As at present, there will be credits for those who cannot pay NICs because of caring responsibilities, and the new rules will particularly benefit many older women, whose time at home with children has damaged their state pension entitlements. Each individual will qualify for a pension in their own right, with no complex rules about claiming pensions based on someone else’s NICs.
While people have to take responsibility for their own future, as a Government we will make it easier and simpler for people to plan. A combination of a single, simple, decent state pension and the right to a workplace pension will mean that, for the first time, there will be a firm foundation for retirement for today’s working population.
You can read the whole article here.
* Caron Lindsay is Co-Editor of Liberal Democrat Voice and blogs at Caron's Musings