The proposed changes the are broadly welcome. A flat rate state pension for all will provide a foundation on which other later life income can be built. We must make it safe to save and to work for longer, but the current system of means-testing undermines this. Ultimately, anyone reaching the state pension age will receive £144 a week (or the equivalent in tomorrow’s money) – and that is it. If they want more than that, they will have to do something about it themselves, either by saving more, working for longer or finding other income. It doesn’t make sense for the state to pay earnings-related state pensions. Higher earners should be in a position to provide more for themselves, so why should the state pay them more in retirement? The experiment with contracting-out has left a legacy of complexity and failure. In future, everyone should pay the same rate of national insurance and be paid the same state pension.
Ros Altmann is director-general of Saga.
There is merit in bringing simplicity to the state pension system. But the coalition has allowed the left of the Liberal Democrats to take over this policy area, with damaging consequences. A great virtue of the UK’s pension system was that it allowed people to opt out of part of the state pension and make private provision. Gradually, Gordon Brown undermined contracting out, and the coalition is hammering the last nails in the coffin. Under these new rules, the government will effectively raise taxes by spending money on higher state pensions today that would have been saved in private funds for the future. It’s a pity market-oriented members of the coalition could not have persuaded Steve Webb to introduce a modernised form of contracting out in order to promote private saving, rather than loading future generations with more liabilities.
Philip Booth is professor of insurance and risk management at Cass Business School.