A new deal for pensions?
There can’t be anyone who hasn’t worried about how they’re going to live in retirement. It’s a universal worry: how can we save enough to be able to guarantee a retirement free of financial worry?
And what if you do save, but save just enough to put yourself beyond the ability to claim state support, in the form of pension credit, housing benefit and council tax benefit? For many, it’s been a difficult conundrum to balance and may have played a part in discouraging millions from saving for retirement at all.
But now, it seems, all of that may be about to change. For it’s been reported that pensions minister Steve Webb and work and pensions minister Ian Duncan-Smith will soon unveil an answer to these worries: a universal pension of £140 a week, regardless of the level of savings an individual has put away.
To me it seems this potentially would give a huge boost to retirement savings, since everyone would know that they could only improve their standard of living as a pensioner by putting money away. At the moment that’s just not the case.
Take a look at the figures as they currently stand. The basic level of state pension is currently £97.65 for a single person, and £156.15 for a couple. If a pensioner doesn’t have private income, from an occupational or private pension or other source, it’s made up to £136.20, the minimum income guaranteed to each UK pensioner, through means-testing for state help in the form of pension credit, housing benefit and council tax benefit.
So, under the current system the question has always been: why bother to save extra if there’s a chance you’ll gain little more than ruling yourself out of claiming benefits in retirement? But the pension as a universal benefit, paid to all who have lived in the UK for long enough to earn the benefit, could change that.
It’s been welcomed by pensions campaigner Dr Ros Altmann, who advised the previous government on pensions reform, and said today: “At last, a Pensions Minister who understands pensions.” She said: “This would be the best news on pensions in years,” giving, “a really decent pension in exchange for the later pension age.”
And that’s another point worth considering. From 2020 everyone will retire at the age of 66 – and that could be raised still further in years to come – so it’s only fair that the pension you get a year later will be worth having.
But as with all proposals there are potential downsides. One is that existing pensioners are already seen to have done unduly well in the recent spending review, while families with children lost out on measures such as child benefit, child tax credits, and facing the prospect of saving for their children’s university education in the future. Could this be too politically controversial to introduce if it makes already wealthy pensioners still better off?
On the other hand, we’re all going to be pensioners one day – and this proposal would not only affect existing pensioners but also those of the future, having a real impact on how much we all save now for our future retirements.
But what do you think? Is the universal pension a good idea – or can you see any drawbacks? And does it make up for raising the pension age to 66?
Would you be more likely to save for retirement if it was introduced? Or would it make you less likely to save, but reassured about the minimum level of income you’d enjoy in the future? At £140 a week, is it a “really decent pension,” as Ros Altmann suggests, or is there still room for improvement?
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