Government needs to simplify policy rather than introduce more means testing, says IPPR
The proposed pensions credit is too complex and the Government needs to simplify policy rather than introduce more means testing, an influential think-tank has told the Government.
The Institute for Public Policy Research (IPPR) gave evidence at the Department of Work and Pensions select committee last week. The think-tank told the Government it should raise the Basic State pension to the minimum income guarantee and restore the earnings link instead of introducing the pension credit.
This would have the benefit of ending pensioner poverty and would make pensions simpler as there would be less means testing, according to the report's author, Richard Brooks.
He said: 'An enhanced Basic State pension is the best way to provide an environment in which people can plan with confidence and be rewarded for saving.'
The report also proposed phasing out the State Second pension and associated National Insurance rebates. Brooks said that under the IPPR mode, the Basic State pension would be higher than the Government's planned level for the combined Basic State pension and State Second pension. The Government response to this suggestion and the report in general, was critical.
Alistair Darling, secretary of state for work and pensions, said: 'The IPPR proposals are simplistic and misguided. Far from helping company schemes, they will completely undermine them by dismantling the State Second pension. They will undermine the entire contracted-out basis on which private provision is built.'
Providers saw more merit in the proposals. Mike Fairbairn, general manager at Co-operative Insurance Society, argued that despite changes made by the Government, a fundamental change to the pension regime needs to be looked into.
He said: 'There are so many aspects for consumers to understand. Even with things like the pensions forecast, it is hard for people to plan for their retirement, so there is definitely a good case for simplifying the system.'
The official retirement age should be increased to 67 by 2030, said Brooks. The institute said its proposed reforms would cost no more than the Government's current proposals over the short or long term.
The report also looked into long-term care issues. Brooks argued that personal care as well as nursing care should be free on the basis of need.
He said money to pay for these changes could be raised by removing tax relief from equity-based Isas. He also suggested the upper limit on National Insurance contributions should be aligned to the higher rate.
Fairbairn expressed concern removal of Isas could damage the Government's aim of encouraging saving. He said: 'We don't think the change is necessary. Isas were put in place to promote the saving habit. Short-term savings can lead people to think about saving for their retirement.'
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