Pensions Reform Group suggests replacing basic state pension with a defined benefits scheme offering just over 28% of average earnings
The Pensions Reform Group is looking to launch a national defined benefit scheme to replace the basic state pension.
The new scheme, the Universal Protected Pension, which aims to provide a pension of just over 28% of average earnings, has been devised by the task-force set up by Frank Field MP.
The group is made up of MPs from the three main political parties, academics and leading industry figures. The initial report has invited contributions from interested parties.
Under the Universal Protected Pension Plan, everyone aged over 25 and in work will become a member of the scheme. It is envisaged they would pay an equivalent of around 5% extra on National Savings contributions.
The group also came up with an alternative set of proposals where the age of retirement is lifted to 70.
In this scenario, National Savings would only have to be raised by around 2%. Field argues that these reforms would almost entirely end the need for means-testing, which would save the Government £10bn per year.
The scheme proposes contributions to be set as a percentage of earnings above the National Insurance Lower Earnings Limit. Each year of contributions would give entitlement to a set percentage of average earnings.
Someone paying 40 years' worth of contributions would be entitled to £210 per week at 2000 prices, according to calculations made by the Government Actuary. These costings would allow for the individual's fund to be passed on in the event of death before retirement.
The report takes into account the fact that younger earners may find it difficult to contribute as much as necessary and so argues that it should be phased in for younger workers
The proposals, if implemented, would mean that there would no longer be a requirement to buy an annuity with voluntary savings. The additional revenue raised would also enable the Government to remove income tax from pensioners.
The proposals have been broadly approved by campaigning bodies. The Consumers Association welcomed the report and said it was an important addition to the debate on provision for pensioners.
Mick McAteer, senior policy adviser, said: 'A decent standard of living will cost much more to deliver in the future but, as a country, we are not saving enough. Some estimates indicate that current generations are saving only a third of the amount necessary to deliver a decent pension retirement.'
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