The government’s plan to reform state pensions found support in the research paper published yesterday by the Pensions Policy Institute that claimed proposed reforms will cost no more than the present system and will be simpler to administer than the current means-tested benefits system.
The government’s Green Paper, A State Pension for the 21st Century – was backed by the PPI study, commissioned by the National Association of Pension Funds (NAPV).
The cost implications of the government’s proposed single tier, flat-rate £140 a-week pension for people who reach retirement age after 2016, will largely be neutral, said Niki Cleal, director of PPI.
“Some 7 million pensioners could see their household pension income increase under the single-tier reform by 2034, but 5 million pensioners could see their household’s pension income reduce”, she said.
“A single-tier pension is likely to be beneficial for some women, carers and some low earners who tend not to qualify for a high amount of state pension in the current system. The self-employed may also benefit, although they may have to pay higher national insurance contributions in the future”, she added.
“Those individuals who would have qualified for large amounts of state pension in the current system could lose out the most under a single-tier pension – often moderate to higher earners with an expected full career and National Insurance contribution record”, Ms Cleal warned.
“Those individuals who would have qualified for large amounts of state pension in the current system could lose out the most under a single-tier pension – often moderate to higher earners with an expected full career and National Insurance contribution record”, she observed.
“The single-tier pension could place additional burdens on employers and employees in defined benefit schemes in both the public and private sectors as National Insurance contributions would increase.
“The final impact on private pension scheme members would depend on how employers reacted to the government’s state pension reforms”, she said.
Nonetheless by 2034, a staggering 5 million pensioners could lose out if the government accelerated the pension reforms and made state pension flat-rate by 2020 instead of 2030, she warned.
“Accelerating the pace of current state pension reforms would save the government money but overall pensioners would be worse-off. However, this reform may put less pressure on existing private pension schemes than the introduction of a single-tier pension”, she added.