Consultation finds broad support for pension reform

The Government’s consultation on state pension reforms has received broad support for the introduction of a single-tier system but groups have warned the transition will need to be managed carefully.

The consultation, “A State Pension for the 21st Century”, set out two proposals – speeding up the transition to a two-tier system or introducing a single-tier flat-rate pension above the pension credit standard minimum guarantee, which would raise the state pension to around £140 per week.

Responses from representative businesses, employers with defined benefit-pension schemes, pensions administrators and members of the public showed overall support for reform, with more than two-thirds of organisations that took part supporting the one-tier system.

Minister for pensions Steve Webb said: “A simple, decent state pension that is easy to understand would give people more clarity and certainty about what they will get from the state. It is this clarity and firm foundation that will help people make decisions about saving for retirement – a crucial step as we prepare to enrol 10 million people into workplace savings from 2012.”

The National Association of Pension Funds’ chief executive Joanne Segars said that it was encouraging to see such “overwhelming” support for state pension reforms.

“A simpler and more generous state pension of £140 per week would trigger a series of positive effects, benefitting millions of people,” she explained. “It would take millions off means-tested benefits, and would also help ensure that people have a strong foundation on which they can build retirement savings.”

However, Segars added that a single-tier state pension would mean the end of contracting out for defined-benefit pensions, which would have “significant implications” for employers, schemes and members and so would need to be managed carefully.

Manufacturing organisation the EEF has also welcomed the support for the Government’s proposals but warned that measures will need to be introduced to ease the burden on employers and protect private schemes.

Steve Radley, director of policy at the EEF, argued: “Alongside a higher state pension age and the Government’s auto-enrolment scheme, a simpler state pension is the final piece of the jigsaw in resolving the pensions challenges facing the UK.

“But, at the same time, the Government must ensure it does not undermine the wider goal of encouraging private provision by damaging existing, high-quality pension schemes.”

Ministers will now consider the consultation feedback, which will contribute to more detailed proposals for state pension reforms.

Employers can find more information about the current state pension and occupational pension schemes in the XpertHR FAQs section.

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