National Politics Number One- The Future Flat Rate Pension

March

9

0 comments

We’ve had the following email from an onlineFOCUS reader:

“Can any bright spark explain to me, the idea behind the suggested pension changes announced today by the coalition government. The idea is to introduce a flat rate pension for ease and simplicity [agreed!] and to protect women who do not make contributions whilst at home looking after the kids. BUT I thought women claiming family benefits have their NIS contributions for that period made up by the state. So are we looking to support women with kids (and presumably any others) who simply do not want to work?”

We think he is referring to Iain Duncan Smith’s proposal for a flat rate state pension of ?140. As the Guardian explains:

A flat-rate state pension of more than ?140 a week will be signalled when Iain Duncan Smith, the work and pensions secretary, indicates on Tuesday that he has won Treasury backing for his planned reforms.
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A green paper, due at the end of last year, was delayed by internal disputes, but an announcement is likely in the budget in two weeks’ time.
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Duncan Smith will say the current system rewards bad choices and makes saving not worthwhile. “We have to fundamentally simplify the system. And we have to make it crystal clear to young savers that it pays to save.”
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The reform will help women savers and mean pensioners receive the same regardless of how long they have worked or how much they have earned.
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Duncan Smith will say: “Too many people on low incomes who do the right thing in saving for their retirement find those savings clawed back through means testing. We have to send out a clear message across both the welfare and pension systems ? you will be better off in work than on benefits, and you will be better off in retirement if you save.”
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The Treasury had been concerned by the affordability of the reforms. The proposed flat-rate pension will have to be higher than the pension credit of ?132.60 for a single person.
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The Department for Work and Pensions hopes the green paper will be published shortly and the reforms in place by 2016. The ?140 figure is at today’s rates, and will be upgraded in line with inflation. Duncan Smith will claim he and his pensions minister, Steve Webb, [LIB DEM] have done more to reform pensions than Labour did in 10 years, pointing to the restoration of the earnings link and phasing out the default retirement age from April….

Well, one answer is that the proposals fit in with the Tory philosophy of supporting the family and stay-at-home Mums AND fits with Lib Dem aims of improving pensions overall. A good example of coalition policy-making.

Another good answer is given in a comment on the Guardian website:

Sounds like a good idea on paper this, means testing was always complicated and therefore expensive to administer. A flat rate regardless of how long you have worked sounds just right, and means people who have taken time off to look after kids are not penalised for it.

I think his reference to ‘rewarding saving’ means that if you save you don’t get less pension as a result? Therefore the rewarding means you don’t lose out by saving, not that you have to save or indeed should save. It just means you aren’t penalised for saving if you can.

Don’t normally applaud Tory ideas, but this is a good one. Well done IDS. I just hope you can get it past that odious little creep Osborne.

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