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Pensions Green Paper - Unite summary and initial comment ‘A state
pension for the 21
st Century’
This covers the Government’s proposals for a
£140 a week state pension. The proclaimed objectives of this reform
are to reduce complexity and means-testing, to create a clearer
incentive to save for retirement and to offer better benefits to
offset disadvantage to the low paid and to women in the current
pension system.
The Green Paper also proposes that State
Pension Age ought to be increased beyond 66 sooner than previously
planned and invites views on whether this should be determined by
an automatic mechanism (for which no model is specified) or
following a periodic review
Contrary to the pre-launch publicity for
the £140 idea, there is no general increase in state pensions and
since the reform is cost-neutral there will have to be losers to
offset any winners.
Option 1 – Faster
Flat-rating
This option accelerates the evolution of State
Second Pension (S2P) to become a flat-rate benefit worth £1.60 a
week for each year of contributions. This would have happened in
the mid-2030’s but is brought forward to 2020. It ends the concept
of an earnings–related state benefit. Qualifying conditions, for
Basic State Pension (BSP) and S2P, and the basis of increases in
payment could remain different, as now, or moves could be made to
harmonise them.
Although it would deliver £145 a week
after 30 years contributions, this Option is not an improvement on
current benefits (it actually reduces accrual over the next twenty
years for many S2P contributors).
Option 2 – A single flat-rate
pension
This Option combines BSP and S2P. The target
benefit of £140 is clearly well above the level of the Basic State
Pension (£97.65), and above the Savings Credit means-tested minimum
income (£132.60). It would require 30 years of paid or credited
contributions to qualify for the full benefit. Qualification
conditions and indexation arrangements would be based on the BSP
model rather than the more restricted S2P model. It would mean the
end to all contracting-out and so have implications for defined
benefit pension schemes
This is a simpler and more inclusive
pension, but with difficult transitional provisions. Clear losers
are those who would pay or be credited with more than 30 years
contributions to S2P. Winners appear to be those who might
presently qualify for BSP but would fail to achieve 30 years in
S2P
Unite policy has supported an increase in
the BSP to reduce means-testing but also the retention of an
earnings-related second tier state pension. The reforms may
lead to clearer incentives to save but may increase the need to
save for a lot of people whose state benefits are reduced
