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A Truth Universally Acknowledged…?
By Christopher J Sherliker

Starting at a paltry £97.65 a week (assuming you have a full National Insurance record), the basic state pension rises to a minimum income guaranteed top up figure of £132.60 if you have no income from other sources such as a company pension scheme.

But this minimum figure top up is means tested, which led to some of the neediest of our society failing to claim what they were entitled to. Many older people, especially older women with incomplete NI records due to home care breaks, were of a generation too proud to go cap in hand as they saw it to some bureaucrat in the social security office asking intrusive and personal questions.

What is now being proposed is a simple flat rate £155 per week basic state pension, available to all new pensioners from 2015 irrespective of child care breaks. Of course, another proposal mentioned in the Budget was the merging of income tax and National Insurance, so that all dovetails nicely if they can ever get the system to work!!

There will be additional positives for the Government too in a subtle boost to the NEST scheme. Why? Simply this. NEST, while giving a pretty minimal outcome for an inadequate 8 percent contribution, would have been sufficient to remove people from qualifying for the means tested minimum income guarantee. Consequently, the view went, why bother to save for one’s old age when the Government would provide anyway? Some pundits were predicting a significant opt out from NEST as a result. Of course, the best answer is adequate workplace pensions, but that’s another story!!

This green paper for once seems a very sensible simplification and is to be welcomed by all (though no doubt some will not). Iain Duncan Smith conceded what those of us in the pension industry have been saying for years – the state pension system (in fact ALL pension systems in the UK) is just far too complicated and, frankly, is a turn off to saving. Yes, it is unfair to existing pensioners who will not benefit from the change but, as we know, the coffers are not bottomless. As Steve Webb said on BBC Radio 4:

“Tomorrow’s pensioners do face a very different world. They will, on average, be working for a lot longer, they will be retired for longer, they won’t, on the whole, have final salary guaranteed pensions in the way that perhaps their parents did. We therefore need a simpler, clearer foundation because more of them will now be asked to save for their retirement.”

A further reform concerns linking the increase in state pension age to increasing longevity. We already know that the State Pension Age is to rise to 65 by 2020. And then gradually to 68 by 2040.

Providing automatic rises will depoliticise the argument as it’s pretty tough to argue with science, and the science tells us we’re all living longer. It’s a price we have to pay…get over it.

Added: 19th May 2011

Christopher J Sherliker is a partner for Silverman Sherliker LLP who provide legal solutions across a spectrum of requirements.  Find out more about Silverman Sherliker LLP.

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