Government looks to simplify the state pension

Secretary of State for Work and Pensions Iain Duncan Smith has indicated the government is looking at simplifying and increasing state pension, as well as abolishing means testing and pensions credit.

Addressing delegates at the Age UK conference, Duncan Smith said the current system was too complex and that means testing was demeaning and acting as a disincentive to save. He also suggested that the state pension will increase to £140 a week. 

He said: “Just like the chaos in the benefit system, piecemeal changes to state pensions have turned what started as a relatively simple contributory system into a complex mess. S2P [the state second pension], Serps, graduated retirement pension, the additional state pension – these are names designed to strike fear into the heart of a young saver and confusion in almost everyone else.The system is so complex that most people have no idea what any of this will mean for them now and in their retirement.

“And for those on the lowest incomes, the complex rules governing Pension Credit have been a barrier to claiming the money they so dearly need. That is not to mention the demeaning nature of the means-test, which we know puts people off from making a claim, as well as acting as a disincentive to save.”

Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), welcomed the moves to increase and simplify the state pension.

She said: “Radical state pension reform to create a single, simple and more generous state pension could take millions of pensioners out of poverty and provide a firm foundation for saving fro old age. For the first time in a generation, people would know that it pays to save.”

Tom McPhail, head of pensions research at Hargreaves Lansdown, added: “Without this reform there would always be a risk of confusion, disengagement and missed opportunities. A simple universal state pension will minimise the risk of people opting out of the auto-enrolment process, due to start next year. It will also ensure everyone has a clear expectation of what the state will deliver them, helping them plan how much they need to save on top in order to deliver the retirement income they aspire to.”

Michelle Mitchell, charity director at Age UK, said: “Three cheers for aspiration but this announcement appears to be solely for future generations entering retirement.

“The secretary of state must take credit for protecting the benefits that today’s pensioners already enjoy such as the bus pass, winter fuel payment and free TV licence for the over 75s but there is nothing in this announcement that will represent a step change forward for today’s pensioner population. We look forward to hearing what plans the government have for lifting the 1.8 million pensioners currently living in poverty.”

For more articles on the state pension and means tested benefits