The complexity of the state pension system would ‘baffle Einstein' according to pensions minister Steve Webb - but simplification could be easier said than done. Jenna Towler reports...
The variation in state pension payouts currently ranges from a miniscule £7 a week, to a more reasonable £230, according to latest data from the Department for Work and Pensions (DWP).
The government said the difference - which can amount to £10,000 a year - is down to the level of basic and additional state pension paid out under the present rules.
About 130,000 pensioners get £7 a week, or less, and the same number is paid £230 a week. The government released the figures to highlight what it called ‘staggering’ differences due to the complexity of the current system. It said its plan to bring in a £140 flat-rate state pension for new retirees, regardless of circumstances, would solve the problem.
Stripping down the state pension
A delayed white paper on the mechanics of the flat-rate pension is due to be released later this year. It was originally scheduled for the spring, but Webb admitted in July the “scale, complexity and importance” of the project meant the paper’s release had been pushed back.
He said: “The current system is so complex it would baffle even Einstein. Worse, if people have no idea what they will get, they can’t make sure they have enough savings for their retirement.
“We can’t go on playing roulette with pensions. A flat-rate single-tier state pension will restore simplicity and give people certainty instead of chance. And it will provide a sure foundation for further saving.”
Aegon head of regulatory strategy Steven Cameron said while it is logical to move to a simplified system, transitional arrangements are essential and exceptionally important.
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