3 December 2012

Will we get a flat rate State Pension?

A flat rate State Pension of £140 per week has been much-trailed, and was confirmed during the recent party conference season.
 
This would replace the current, rather complicated, two tier system which has a Basic State Pension which everyone with 30 years of National Insurance contributions gets in full at £107.45 per week, and a State Second Pension (previously called SERPS) which depends on earnings and on whether you have been contracted out (and if so, for which years).
 
But as usual with pensions, the aim of simplifying things gets hijacked when you look at the detail. For example, how do you introduce it? In particular what do you do about people who already get more than that flat rate because of higher earnings?
 
And then there is the issue about those who are contracted out. They get the equivalent of the State Second Pension via their main pension provider. Would their pension payments be cut as well?
 
The alternative is a generation-long transition period to avoid disadvantaging existing pensioners. Difficult decisions for the Government,  but there is a desparate need for simplification. Without it pensions will continue to be seen as obscure and best avoided, when in fact they are generally the best hope for a reasonably prosperous retirement.

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