Pension reforms will mean it 'pays to save'
Wednesday, 09 March 2011 11:03
Iain Duncan Smith, the Works and Pensions Secretary has announced plans to simplify the state pension to encourage young people to save and to get rid of means testing which, he believes, discourages people from saving for retirement.
Mr Duncan Smith did not give exact details on the amount of state pension that pensioners will receive in the future but it is believed that it will be a flat-rate payment of £140 per week for both men and women as he attempts to simplify the system to create a uniform payment in the same way that the universal credit has for the benefits system.
The change to a flat-rate pension would also benefit women who currently lose out on making the necessary National Insurance contributions because they have a break in their working lives to look after children.
“We have to fundamentally simplify the system and we have to make it crystal clear to young savers that it pays to save,” Mr Duncan Smith said.
“The state pension system is so complex that most people have no idea what it will mean for them now and in their retirement,” he added.
“And too many people on low incomes who do the right thing in saving for their retirement find those savings clawed back through means-testing. We have to change this.”
The state pension age is to be increased for both men and women because the population is living longer and the default retirement age is to be abolished in October which means people will be able to work past the new age of 66 that people will be entitled to the state pension from. The government has also said that all firms will be required to enrol staff automatically into a private pension scheme.
Paul Goodwin, head of pensions marketing for Aviva said:
“Simplification will help to address this confusion and could encourage customers to make plans for their own retirement. It should also ensure that auto-enrolment will be profitable for all savers.
“With greater understanding of what individuals can expect from the state, people will be better placed to plan their own private savings. A simpler state pension will raise levels of understanding and help people take greater control of their planning for retirement.
“The state pension provides the foundation for all pension saving in the UK, so we are pleased to see the Government indicating an intention to simplify the state pension.”
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