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A new deal for pensions?

Oct 27, 2010

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.

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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?

Share your thoughts by leaving a comment in the box below.

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13 Responses to “A new deal for pensions?”

  1. Tracey anne Says:
    Oct 28, 2010 at 6:58 am

    But is the intention for the pension to continue to be contribution based? If so there will presumably still need to be a safety net of means tested pension benefits for those that have not paid in to the system. If it is truly universal and not contribution based – is that not a disinsentive to work – if you’ll get you pension what ever??

  2. Maggie Says:
    Oct 28, 2010 at 8:44 am

    I understand from a friend that the new pension deal will not be offered to us – who are 66 and, incidentally, still working because the current pension is not sufficient to live on. Is this the case? If it is I consider it grossly unfair that younger people may be able to actually retire, while we continue to work.

  3. Margaret Green Says:
    Oct 28, 2010 at 9:22 am

    Are there any proposals for the people who now get more than the £140 a week pension?

  4. DaveG Says:
    Oct 28, 2010 at 9:33 am

    As I see it existing pensioners do not get the increase to £140 in 2015. Why?

  5. PAUL O'NEILL Says:
    Oct 28, 2010 at 9:46 am

    I have a pension frozen at the moment (worth about £50 a week),I was thinking of cashing it in at 55 because it would have stopped me getting any pension credit. I would now not do this if there a universal pension.

  6. Graham Says:
    Oct 28, 2010 at 9:57 am

    Pensions for many working people is all about the future and as we have seen that is very hard to predict. What does it matter if we will get £140 per week if the economy collapses again and/or inflation soars? Pensioners will still need to pay for rent, council tax and fuel and £140 per week will absorb most of that, so what do they eat? If the £140 is designed to do away with all the other benefits like pension credit, housing benefit, council tax benefit, TV licence, winter fuel allowance and bus passes then pensioners will be universally worse off in years to come. My retired uncle (a former union leader) is convinced that he will loose out as he paid extra contributions and gets (he claims) about £240 per week from the state at present so he thinks that will be cut to £140…is he right?

  7. Janet Wolfenden Says:
    Oct 28, 2010 at 11:50 am

    What about the Second State Pension (that which replaced SERPS a couple of years back). I don’t see any mention of this in the newer proposals and I believe it is being quietly ignored so that people forget about it and the Govt can claw back the money! And I agree with Graham. The cost of living will probably be WAY above the current financial situation and yet £140 is proclaimed to be a great increase… I’m sorry but I just don’t believe it.
    Looking forward (NOT!) to not being to retire!

  8. michael glasgow Says:
    Oct 28, 2010 at 9:39 pm

    THE £140 FOR EVERY PENSIONER IF YOU DID NOT PAY ANY NATIONAL INSURANCE OR PAID THE FULL 35 YEARS . ITs NOT FAir to the people who have paid into the national insurance for 35 or 40 years. its the same as someone who has worked all their life and need to go into care home they have to pay and someone who never worked a day in their life gets it free their is no insentive to work.

  9. lagerman Says:
    Nov 1, 2010 at 9:26 am

    What’s the big deal about £140pw as a pension, Graham said it all in his post. Add up all your BASIC monthly expenses would £140pw cover it all and allow you to live in style, nice car, holidays, golf 3 times a week.

    If you cannot live on £140pw now you cannot afford to live on it when you require, even if you own your own house and have no mortgage to pay. If you do own your home and your health goes so does the house to pay for care, and your spouse then has nothing either.

  10. PHIL Says:
    Nov 1, 2010 at 10:26 am

    What about existing pensioners? This proposal creates a two tier pension system that disadvantages those who have already paid their contributions over the length of their working life. I think that to give new pensioners £140 per week and leave existing pensioners on £97 is totally wrong. When are existing pensioners going to mobilise and protest en masse? If someone can tell me I will be at the front.

  11. Keith Says:
    Nov 1, 2010 at 2:41 pm

    Does this proposal apply to all pensioners, including ones who move here from other European countries who will have contributed absolutely NOTHING. Even the non-working people will have contributed through indirect taxation.(i.e VAT on their petrol and other purchases)

  12. les rollinson Says:
    Nov 2, 2010 at 4:25 pm

    You can bet if the tories are proposing something you can bet some where down the line they will be clawing twice as much back either directly or indirectly

  13. Julie Adams Says:
    Nov 4, 2010 at 8:46 pm

    Oh dear. My occupational pension (I’m a teacher with 30 years service) is being hit hard- I won’t get my half final salary pension- and I have to work to the age of 67. I’m in a high stress occupation and those extra years mean I’m more likely to get a death in service pay out instead. That pension was the reason I stuck with teaching through thick and thin. I feel very short changed. Forget your £140 a week- the big idea is to kill us all off

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