Pensions provider LV= welcomed the government’s decision to break away from over reliance on means-tested benefits but warned it against rushing through the changes.
Head of pensions at LV Ray Chinn said the provider also welcomed the Department for Work and Pensions’ (DWP) move to hold wide ranging consultations on state pension reforms and believed the move will help pensioners.
Although he agreed that the current pension system needed reforms, he said the the matter is complex and the government should act in haste.
“The state pension needs updating. It is too complex and the wide use of means-tested benefits is a disincentive for many people to save independently for retirement”, said Chinn.
“The complication of the current system results in confusion, which stops people from saving for their retirement. In addition there is an over-reliance on means-tested benefits in addition to historical inequalities, which will take years to work out of the system”, he added.
“While it would be an improvement on the current pensions system, we do not believe the option of speeding up the move to a flat-rate state second pension is the answer. Many issues would still remain. There would still be a great degree of complexity as a two-tier benefit system would still exist”, he warned.
Referring to a previous research conducted by LV=, which showed one in four pensioners had no personal or retirement savings within an year of retirement, Chinn said: “It’s worrying that many people close to retiring have no idea what their income will look like, or simply have too little savings to rely on anything other than the state. A simpler state pension that doesn’t means-test could help start to change this”.
However, not everybody agrees with Chinn. “Reforms have certainly been taking place at break-neck speed but this has delivered more clarity and greater flexibility for investors sooner rather than later, which I think is a good thing”, said Laith Khalaf of Hargreaves Lansdown.
“The annual contribution allowance and end of compulsory annuitisation rules are now almost done and dusted, though the more controversial move from RPI to CPI inflation for defined benefit schemes continues to pose problems”, he added.