The Work and Pension Secretary Iain Duncan Smith is expected to pledge ‘fundamentally simplify’ the way state pensions operate. He is expected to initiate the process through which future retirees will be offered pension payments at a basic flat rate.
He is expected to say the current system, which offers £96 a week to single pensioners and means-tested top-up payments, hurts the low income savers.
Duncan will pledge “a state pensions system fit for a 21st century welfare system”. He is expected to say that reforms are required for the “hope and stability” of future pensioners.
The details of the reforms are expected to be announced in the Budget this year on March 23. The Office of Tax Simplification had recommended withdrawal of contracting-out from defined benefit pension scheme from 2012, saving the Treasury £9 billion.
“This is the keystone which will support the weight of millions of people’s retirement provision. Without this reform there would be a risk of confusion, disengagement and missed opportunities”, said Tom McPhail – head of pension research at Hargreaves Lansdown.
“A simple, universal state pension will minimise the risk of people opting out of the auto-enrolment process. It will also ensure that everyone has a clear expectation of what the state will deliver for them, helping them to plan how much they need to save on top in order to deliver the retirement income they aspire to”, he added.
Since the government’s announcement last October that means-testing will be withdrawn for future beneficiaries, experts had warned the move will make it difficult to accommodate people who had already contracted out of SERPS or the state second pension scheme.