March 17 2014 Latest news:
Adam Aiken, Editor
Sunday, March 13, 2011
The recent announcement that the state pensions system is to be given a complete overhaul has received a broad welcome from analysts, with one expert branding it “a turning point”.
Work and pensions secretary Iain Duncan Smith said the existing system was too complex and means testing for pensioners discouraged many people from saving for retirement.
Although he did not unveil the details, there has been speculation that a single-tier pension could be worth about £140 a week. (Single people who receive the full state pension and pension credit currently get £132.60 a week.)
A move to a flat-rate state pension would remove disincentives for lower earners to build up savings, and such a change would be likely to benefit mothers, who currently lose out because of career breaks for raising children.
“We have to fundamentally simplify the system and we have to make it crystal clear to young savers that it pays to save,” Mr Duncan Smith said.
Joanne Segars, chief executive of the National Association of Pension Funds, was among those welcoming the announcement.
“We are at a turning point for pensions in the UK,” 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 for old age. For the first time in a generation, people would know that it pays to save.
“This is a golden opportunity for the government to begin meeting its commitment to ‘reinvigorate occupational pensions’ and to get the nation saving again. This comes not a moment too soon.”
The latest quarterly Real Retirement Report produced by Aviva suggested that more than two thirds of people did not know, or overestimate, the value of the state pension.
“Simplification will help to address this confusion and could encourage customers to make plans for their own retirement,” said Paul Goodwin, head of pensions marketing at the insurer.
“With greater understanding of what individuals can expect from the state, people will be better placed to plan their own private savings. A simpler state pension will raise levels of understanding and help people take greater control of their planning for retirement.”
There was also support for the news from accountants.
John Nunn, senior financial planning consultant at PKF, said: “We are pleased to see a new pension regime that will be much easier to understand. It will also encourage more people to take out private pensions, something that has been on the wane in recent years.
“Too often, people who have taken the trouble to save extra for their pensions find that their savings make them ineligible for pension credits and other benefits – so they end up paying twice for what they have. Meanwhile, those who have not bothered to save and just rely on the state pension get everything.
“Those with private pensions will now have their position underpinned and they won’t need to face means testing.”