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Attacks on state pension reform are short sighted

by William Robins on Dec 14, 2012 at 14:44

Attacks on state pension reform are short sighted

Today’s Daily Telegraph led with an attack on incoming state pension reforms, warning a flat rate £140-a-week state pension would rob high earners of £1,000 a year in retirement.

The paper said richer pensioners will receive on average £20 a week less than under the current system. A flat rate will end the second state pension (S2P) as it exists today by rolling it into the basic state pension.

Currently S2P tops up the basic state pension and is based on national insurance contributions, a percentage of earnings, so the more you earn the more S2P you receive.

The Telegraph said a high earner receiving £107.45 can boost their state pension payment to £160 using S2P.

While that is true, it is wrong to construe pension minister Steve Webb's plans as an attack on higher rate pensions. The earnings related part of S2P is already being phased out and this started with the previous government.

True, the state pension reform green paper offers just two options and both bring removal of the earnings link forward to 2020. But entitlement already built up through S2P and the earnings link will be retained, meaning there will be many well off pensioners retiring on a 'flat rate plus' of around £160 a week.

Oddly many of those up who will be up in arms about changes to S2P will also complain that the flat rate will only apply to new retirees; those already in receipt of state pension by the time the reforms come in will be paid under the old rules.

Many high earners will not be in a position where they will lose out on that £1,000, and those in the future that will are unlikely to have failed to make private provision for their retirement. To use the this impact of the state pension reforms as an opportunity to attack government pension policy is unfair.

4 comments so far. Why not have your say?

Malcolm Small

Dec 14, 2012 at 15:41

I very much agree - this reform is the single most important piece in the pensions legislative jigsaw. It holds out the prospect for the first time of people actually understanding the state pension system, and what they will get from it. S2P and its arcanely complex predecessors have been beyond the comprehension of all but pensions technical experts. These reforms are also vital in providing a clear incentive to save, in that every pound put by will be to the clear benefit of the saver - unlike the situation at present. It is a shame that we will wind up with two systems running in parallel, and "cliff edge" for some, but many more people will benefit from this reform than will "LOSE" from it. All power to the Pensions Minister!

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John Borgars

Dec 14, 2012 at 17:27

The Daily Telegraph admits further down that all accrued pensions will be protected. Nobody is being robbed.

The proposed flat-rate pension is much fairer because it does not penalise those on modest incomes who have saved up for their retirement by confiscating the bulk of their modest pensions.

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Paul Mills

Dec 14, 2012 at 23:41

At last someone challenges the scaremongering headlines of the popular press.

They constantly hide the fact that all Serps accrued to the date of the FRP roll out, will be honoured.

And, even though they have been told numerous times by Steve Webb that the final rate will sit about one or two pounds above the pensions credit means tested rate of the day. they continue to pedal this £140 nonsense.

One thing that does bother me, is the backlash they will get from current pensioners, who will remain on the old system.

I personally think the new FRP should not start until April 2020, when the pension age hits 66. that way there is a clear cut off point with those being forced to wait a year longer for their payments to start.

For those in the transitional period from 2018, they should be given the option to delay taking their state pension until their 66 birthday, and they would then be switched from the current system to the new FRP in April 2020.

Of course, those who fall in the 66 retirement bracket will benefit the most, but as the retirement age starts to rise toward 68 and beyond pretty rapidly, there will be a point, where those on the old state pension system will realise they didn't get the raw deal they thought they had.

The Flat Rate Pension is the stand out piece of law for the duration of this current Parliament, and Steve Webb has been by far the most competent, fully informed, forward thinking Minister of any portfolio, that I can recall in the last 20 years.

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Jonathan Kirby

Dec 17, 2012 at 09:52

It is also fairer to all the self-employed who have contributed Class 4 NI and got absolutely nothing for it.

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