Government Publishes State Pensions Green Paper

The Government has released plans for the biggest shake up of the state pension system for generations in A state pension for the 21st Century Green Paper.

The document sets out options for simplifying the current state pension system for future pensioners. These include the proposal for a single-tier state pension set at around £140 a week, which would replace the existing combination of entitlements that make up the present state pension.

The radical redesign is aimed at lifting millions of pensioners out of means testing and also ending the inequalities in the current system that penalises women, low earners and the self-employed.  However, the reformed system would still based around the contributory principle.

Iain Duncan Smith, the Secretary of State for Work and Pensions, commented:

“Over the years small changes to the state pension system have turned what started as a relatively simple contributory system into a complex mess, leaving people utterly confused as to what the state pension means for them.

“We have to send out a clear message across both the welfare and pension system: you will be better off in work than on benefits and you will be better off in retirement if you save.”

Minister for Pensions, Steve Webb said:

“The current state pension system is dogged by complexity and confusion, it makes it very difficult to save for retirement and leaves millions of people relying on complicated means tested support.

“I’m proud to bring forward proposals that will end the unfairness inherent in the system and secure a fair, decent and simple state pension fit for the 21st century. These reforms will transform pension saving in this country for millions of people.”

Currently just under half of pensioners are eligible for means-tested Pension Credit to top up their state pension but around 1.6 million pensioners don’t claim, leaving them with a basic income of below the £132.60 guaranteed credit. The extent of reliance on means testing means that people cannot be sure they will benefit from the savings they put aside.

Ministers say that their state pension reform proposals would underpin existing plans to automatically enrol people into workplace pensions from 2012, bringing between 5-8 million into saving for the first time.  However, they make clear that the reforms would only apply to future pensioners, not those already drawing state pensions at the point when the new system comes into effect.

The consultation period on the reform proposals has begun and will end on the 24 June.  Details are available on the DWP website.


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