19 May 2006
The Pensions Policy Institute has published a report that
analyses 8 alternative state pension reform options, and concludes
that reducing the reliance on the means-tested Pension Credit is
possible.
The Pensions Commission recommended detailed reform to the Basic
State Pension and State Second Pension, in order to stop future
growth of the means-tested Pension Credit.
The Pensions Policy Institute (PPI) has now published a paper,
'Transition trade-offs: Options for state pension reform', which
analyses in detail 8 other state pension reform options that make
different trade-offs to those made by the Commission, and evaluates
them against the Governmen''s 5 tests for state pension reform.
"There is widespread agreement among pension experts that the
pension system needs reform and that reform should start with the
state pension" said Alison O'Connell, Director of the PPI.
"The consensus is, as the Pensions Commission said, that there
should be more pension and less means-testing by Pension
Credit.
"Indexing the Basic State Pension (BSP) in line with earnings is
the minimum requirement to slow the rapid future spread of Pension
Credit. But by itself earnings-indexing the BSP will not reduce the
numbers eligible for Pension Credit.
"The Pensions Commission proposals were more generous than just
earnings-indexing the BSP. But their proposals would not
significantly reduce the proportion of older people still eligible
for Pension Credit from its current level of 50%. The value of
saving would remain uncertain for many people.
"It appears that the Government, like the Pensions Commission,
prefers incremental changes to the current complex multi-tier
pensions system. One danger in that approach is that the well off
gain more. Under the Commission's proposals the most well off would
receive £25 a week more compared to the least well off
receiving £5, in 2030."
The Pensions Commission recognised the significant benefits of a
simpler solution but, because of specific concerns, preferred a
more complicated route. The PPI paper, 'Transition trade-offs:
Options for state pension reform', attempts to address those
concerns.
"We offer 3 different ways a simple, single-tier state pension
can be afforded within the same cost range as the Commission's
proposals. Each of these solutions could be better for the less
well-off" said Alison O'Connell.
"And by reducing eligibility to Pension Credit to only 10% of
older people, a simple, single state pension would provide a solid
foundation for voluntary pension saving, whether through the NPSS
or otherwise."
