Sunday, 3 April 2011

An express train bearing down on us

The flat rate state pension could become one of the Coalition's most challenging reforms.

Mooted at around £140 a week in today's money, it wouldn't come in until 2015 - so just before the next election or to be introduced straight after.

That may seem a long way off. But, believe me, it could begin to look like an express train approaching from the distance, with everyone tied to the tracks in front of it.

Why? Because existing pensioners wouldn't get it. And some future pensioners could actually lose out.

Here are the difficulties facing Iain Duncan Smith, and Steve Webb at the Department for Work and Pensions:

1. Do they really want to leave some future pensioners worse off? Under the current system, a considerable number stand to get more than the £140 equivalent because they have contributed to the State Second Pension. But S2P is likely to disappear.

2. Do they really want to bring in a 2-tier system, with many existing pensioners (who don't have a big S2P) receiving less than future pensioners? Because millions have already retired on less than £140.

On the first point, the likelihood is that all pension rights accrued up until the launch of the new system will be honoured, although that raises the cost of the transition.

On the second - well, giving everyone the same would cost a great deal more. Ministers won't want to promise that no one will lose out, but the pressure to placate 11 million pensioners could become hard to bear.

Otherwise, elderly pensioners would be getting a worse deal than younger and sprightlier retirees in their sixties.

So, to ease the package through, perhaps we will be told about fresh protections and temporary measures to make sure no pensioners feel like second class citizens.

And perhaps that will come close to an election?

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