The government has announced it will launch a consultation on reforming the basic state pension.
A spokesperson for the Department for Work and Pensions (DWP), said: “The Chancellor has confirmed the government will improve the quality and accessibility of pensions in the Spending Review period.
“We will be bringing forward proposals for reform later this year. Our aim will be a simple, decent state pension for future pensioners, which is easy to understand, efficient to deliver and affordable.”
“The state pension system is complex, complicated, difficult for people to understand and we want to look at ways of making more straightforward, decent and fairer.
“We know many pensioners do not claim pension credit even though they are entitled to it, so it is clear something needs to be done.
“We want a pensions system, as we are working towards with benefits and welfare, that is easy to understand and fair for people.”
Tom McPhail, head of pensions research at Hargreaves Lansdown, said: “With this reform we would finally achieve a simple, transparent and functioning pension system which would encourage everyone to save for their retirement.
“It will take time to phase in as, for years to come, taxpayers will reach retirement with state pension rights which exceed the new universal pension level.
“Final salary scheme members may not welcome this news as it may well mean the end of contracting out for final salary schemes, , in turn, will mean a 1.6% rise in their national insurance rates – effectively a tax rise; this will be particularly relevant for public sector scheme members who are already facing a 3% increase in their contributions.
“Depending upon the terms of the review, this news could mean a last bonanza for contracting out into a money purchase pension. For the next two years investors can still receive rebates into their Sips or personal pensions. If they are ultimately going to receive a universal state pension benefit then these rebates could be ‘free’ money.
“We have not yet seen any detailed costings but a more rapid rise to the state pension age (beyond last week’s age 66 announcement) may be the price that has to be paid to cover the cost of this benefit.”
Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), added: “The government’s plans are welcome. The UK’s state pension is the worst in Europe, and we really need a simpler, fairer and more generous system.
“A clearer, flat-rate pension would provide much-needed certainty to savers and pensioners, and would cut bureaucratic red tape.”
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