Pensions industry backs flat rate state pension

More than three-quarters of respondents to a government consultation on reforms to the state pension have backed the proposal to introduce a £140-a-week flat rate state pension from 2015. Respondents included businesses, defined benefit schemes, pensions administrators and trustees, the voluntary sector and the public.

With the aim to create a simpler state pension and relieve reliance on means-testing, Pensions Minister Steve Webb presented two options in the consultation:

1. Retain a two-tier state pension and accelerate current plans for a flat rate means tested second state pension (S2P) to 2020.
2. Move to a single flat rate pension of £140-a-week from 2015, dropping the S2P and pension credit.

The majority preference for option 2 demonstrates widespread industry support for simplification of the state pension system. The radical overhaul will increase clarity and certainty about how much people can expect to receive from the state in retirement. In turn, the realisation of the size of the state pension should encourage more people to make their own provisions. The transition will not pass without conflict, with some people likely to be worse off than under the current system, but there are always winners and losers with major change and something needs to be done to get the UK saving.

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