Introduction of a simpler, fairer Citizen's Pension and raising the retirement age to 69 would take 10 million future pensioners off means-tested benefits, the National Association of Pension Funds says.
In its final report proposing the implementation of a Citizen’s Pension regime, the NAPF claims such a system would reduce pensioner poverty, provide a far simpler state pension system on which to build additional savings, and would be fairer to millions of women, carers and others who miss out under the current system.
Moreover, The NAPF if a Citizen’s Pension were introduced in 2010, it would cost no more than the current state pension system, provided the money currently spent on the Basic State Pension, State Second Pension (including contracting out rebates) and Pension Credit was used.
The future cost of raising the Citizen’s Pension in line with earnings by raising the state pension age to 67 by 2030 with either an increase in National Insurance contributions of up to 1.5%, or a further increase in state pension age to 69 by 2040.
A MORI poll carried out for the NAPF also indicates public support for key aspects of the Citizen’s Pension, with four out of five Britons supporting the idea of equal pension payments for men and women, even where women have taken work breaks, or are working part-time on low salaries.
Christine Farnish, chief executive at the NAPF, says: "Since our original proposals for a Citizen’s Pension were published three years ago, the debate on pension reform has moved on significantly. The principle of a simple, adequate, first-tier state pension, available to all, has become the basis for a growing consensus among opinion formers in the pensions, political and academic arenas.
"Our research shows that these proposals chime closely with the pension priorities of consumers. People want a simpler, fairer system, which does not penalise women who have taken work breaks, and which does not subject millions of pensioners to means testing.
"The Citizen’s Pension meets these criteria, and makes the whole pensions landscape much clearer. The "deal" from the state is £109 a week. For anything above that, you have to save through a workplace pension or other savings arrangements. There would be an opportunity for government to look again at designing more effective incentives for such savings."
According to the NAPF, the CP could be paid for by removing contracting-out rebates and shifting the extra money to the state pension. This in turn would allow final salary private sector pension schemes to redesign benefits to offset the cost, states the NAPF, and would enable "hard-pressed employers" to hand a tranche of their pension liabilities back to the state, reducing the "liability overhang" in final salary schemes.
Similarly, the extra funding needed could be paid for providing a more generous state pension as there would be more people able to pay income tax, suggested the NAPF.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Matthew West on 020 7484 9893 or email [email protected].IFAonline
The increase in minimum AE contributions has had little impact on opt-out rates - with cessations after April increasing by less than two percentage points, data from The Pensions Regulator (TPR) shows.
Follows string of appointments
Follows acquisition of BlackRock's DC platform
‘In the know’
£116.8m of benefits received by customers