Any attempt by the government to introduce a ‘simple’ single-tier state pension will take a generation as it will require complex transitional arrangements and will otherwise be unfair on those that have not contracted out of the state second pension, an industry expert warned.
The government will seek to launch a single-tier state pension of £140 per week. Chancellor George Osborne had announced in the budget.
Although the government fell short of explaining how the move to a single state pension would work, it could lead to those contracted out gaining disproportionately, warned Steven Cameron, head of regulatory strategy at Aegon.
“It would be very unfair if in the transition to a level single state pension the government did not allow for that, as those people that have contracted out would be benefiting and those that had not contracted out would be relatively worse off”, said Mr. Cameron.
People who have not contracted out will have right to the state second pension since they have been making contributions to their national insurance, and could end up receiving same weekly pension money as those that have opted to make their contributions into a private pension, explained Mr. Cameron.
“They will need to take this into account as part of the transition to any single flat state pension”, he said.
Aegon has raised this issue in its response to the latest consultation, said Mr. Cameron.
“For a whole generation people will need to understand the transitional implications – the government can’t just draw a line and say right everyone is getting £130-£140 per week. It just can’t do it because some people should be getting more from the state pension and some people have contracted out, so it will need to find ways of creating a fair transition and that will take a generation to work its way through the system”, he argued.