Pensions minister Steve Webb has announced that a white paper on state pension reform is to be postponed to the autumn due to the “complexity and importance” of these reforms.
The statement said:
- The chancellor George Osborne confirmed in the Budget 2012 that the state pension system will be reformed to introduce a simpler, single-tier state pension for future pensioners to better support saving for retirement.
- The single-tier pension will be set above the basic level of the means test, providing the foundation needed to support auto-enrolment.
- The Budget 2012 also confirmed that the government will introduce a mechanism so that future increases in the state pension age take changes in longevity into account.
A spokesperson from the DWP said: “Years of tweaks and piecemeal reform have left our state pension as one of the most complicated in Europe.
“We are absolutely committed to bringing in landmark reforms that will bring much-needed clarity and simplicity to the pension system.
“Given the scale, complexity and importance of these reforms, we are continuing to work on the details to ensure we get it right.
“We will set out further detail on both the single-tier reform and state pension age review mechanism in a white paper this autumn and introduce reforms in the next parliament.”
Joanne Segars, chief executive at the National Association of Pension Funds (NAPF), added: “It is good to see a clear direction of travel and confirmation that these important reforms will go ahead. But the time for talking should be over by now. We need to see these reforms become reality.
“Our state pension is one of the most complicated and least generous in Europe. The proposals for a simpler, flat-rate foundation pension are critical to the success of auto-enrolment. People need to know that it pays to save for their old age, and that they won’t see their saving means-tested away.
“The government’s delay also means that pension schemes could be under more pressure to adapt to the new state pension. Defined benefit (DB) pension schemes need time to prepare for the end of contracting out.
“The government must give them enough time and give them clarity as a matter of urgency.”
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While a delay in firm proposals for state pension reform is disappointing, it is crucial that the major issues faced are successfully addressed. The government is tasked with delivering a system that is not only adequate, but also sustainable and equitable. To do this first there are major challenges in the detail that must be overcome.
A key element of the proposals will be how state pension age is to be linked to increasing life expectancy. While this has major attractions in terms of sustainability, a one-size-fits-all approach will hit some parts of society much harder than others. For example, in the last eight years, life expectancy for men aged 65 has, on average, risen by two years. Would a two-year increase in state pension age have been reasonable as a result?
Perhaps so for men living in Westminster or Kensington and Chelsea, where pensioner lifespans rose on average by over five years. But it would be a much harder increase for men from Redditch or Rossendale to bear, given their life expectancies rose by less than one year in those areas. Serious thought needs to be given to these issues, both in terms of the design of proposals and, more widely, in tackling this inequality, which continues to grow.
Club Vita hopes that due consideration is given to these issues and looks forward to hearing the government’s proposals in the autumn.