Tuesday, 8 March 2011

Questions hanging over the £140 pension

More from Iain Duncan Smith today on the idea of  a Universal Pension.

He'll say how the horrendously complex state pension system needs to be simplified, to rescue the next generation of pensioners from a quagmire of different schemes and means-testing.

He and Steve Webb, pensions minister, would replace everything with a single weekly payment. It would go to all qualifying pensioners, so means testing would be eliminated and no one would miss out.

Plus, there would be more incentive to save in a private pension because you wouldn't have money clawed back via the means test.

We are unlikely to hear much about the nitty gritty today, but there are some things it would be really nice to know...

Will what you get still depend on having made enough National Insurance contributions? 
The Lib Dems' Citizens Pension idea would have depended on residency, i.e. If you have lived in the UK long enough, you'd get the pension. But it's more likely that pensioners would qualify by virtue of paying sufficient NI -- currently that means 30 years.

Will it be £140?
This is a working figure, bandied about by ministers but not official. It might indicate what people would receive now, in theory, or might be a stab at what they'd get after a 2015 launch date.

What's included?
The understanding is that the Universal Pension would roll into one the State Retirement Pension, means-tested Pension Credit (already £132) and the top up State Second Pension (formerly SERPS). Some people get verging on £140 from these anyway.

What about people who reach pension age before the new pension comes in?
If the Universal Pension is restricted to people who retire after 2015, there could be howls of complaint from those who have already hit pension age before then and miss out on the new payment. What sort of transition will there be to prevent a cliff-edge effect between haves and have-nots.

How would "contracted-out" people be treated?
A lot of people were given a rebate from their National Insurance contributions if they started as private pension plan. It was called contracting out -- the rebate went into the plan. Will they be allowed to have their contracted out pension on top of the Universal Pension, or will their UP be reduced?

PS There are 4 arguments they will use to sell this idea:

1. It treats women carers fairly -- though they've already taken a step in that direction by allowing caring years to be included in the 30 years of NI contributions needed to qualify for a full state pension.
2. It reduces poverty. Lots of pensioners would qualify for Pension Credit but don't apply.
3. It eliminates means-testing and complexity.
4. It improves the incentive to save in private pensions. Vital because soon people will be automatically enrolled in their workplace pension schemes.

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