State pension reform would save millions from means testing | PLSA
State pension reform would save millions from means testing

State pension reform would save millions from means testing

28 June 2011

A simpler, more generous state pension of £140 a week would remove millions from means tested benefits and help ensure pensioners have a firm foundation on which to save for their retirement. Yet it would cost the taxpayer no more than the current system, new analysis showed today.

Under the existing system a third (35%) of all pensioners - or 4.4m people – would be eligible for pensions credit, a means-tested benefit, by 2055. But under a single tier state pension this would plummet to just 5% - or 0.8m people, according to a study for the National Association of Pension Funds (NAPF).

The study for the NAPF by the Pensions Policy Institute (PPI) shows that, of the two options for state pension reform that the Government is considering, the single tier system costs no more than the current system and helps more people.

It would particularly benefit low earners, women and the self-employed. It would also support 2012 pension auto-enrolment reforms by confirming that it ‘pays to save’ and that savings will not be eroded in retirement by means-testing.

Joanne Segars, Chief Executive at the NAPF, said:

“The UK has one of the meanest, most convoluted state pensions in Europe, and a radical overhaul is long overdue.

“A simpler, more generous state pension is a win-win that could lift millions out of poverty without hitting the taxpayer’s pocket. Those who are disadvantaged by the current system, like women and the self-employed, will be better off.

“A revamped state pension would enable everyone to see that there is a clear foundation for their retirement, and that it pays to save. They can then build on this through their own pension and savings. The reassurance that savings won’t be eroded means-testing is essential if auto-enrolment is to work.”

However, a single-tier system would mean the end of ‘contracting out’ from the state second pension. This has a knock-on effect on contracting out rebates for defined benefit pension funds that are worth £5bn a year.

While the NAPF accepts the end of contracting out, it is urging the Government to support pension funds trying to cope with this major administrative shift. It is calling for:

  • pension schemes to be allowed to amend rules around contracting out through streamlined consultation with scheme members
  • Government to give pension schemes five years’ breathing space to prepare for the end of contracting out
  • contracting out to be made as painless as possible, especially around GMP reconciliation. HMRC must be adequately resourced to cope.
  • the trade-off for the end of contracting out must be greater support for private sector workplace pensions, and more evidence of the Government’s pledge to ‘reinvigorate occupational pensions’.

Joanne Segars added:

“Final salary pensions have taken a lot of hits over the years, and the loss of contracting out could create yet more admin costs. With the right support from the Government schemes can make these changes and be put on a firmer financial footing.”


Notes to editors:

1. Joanne Segars is available for interview.

2. The Pensions Policy Institute’s (PPI) research “An assessment of the Government’s options for State Pension reform” is attached. It was commissioned by the NAPF to evaluate the potential impact of the state pension reforms set out in the Government’s Green Paper: A State Pension for the 21st Century.

3. The NAPF response to the Government’s Green Paper: A State Pension for the 21st Century is attached.

4. The PPI is an independent research organisation, with a charitable objective to inform the policy debate on pensions and retirement provision. Its aim is to improve information and understanding about pensions and retirement income through research and analysis, discussion and publication. It does not lobby for any particular policy, but works to make the pension policy debate better informed.

5. The NAPF is the leading voice of workplace pensions in the UK. We speak for 1,200 pension schemes with some 15 million members and assets of around £800 billion. NAPF members also include over 400 businesses providing essential services to the pensions sector.



Paul Platt, Head of Media and PR, NAPF, 020 7601 1717 or 07917 506 683. [email protected]
Christian Zarro, Press Officer, NAPF, 020 7601 1718 or 07825 171 446, [email protected]

Niki Cleal, Director, PPI, 020 7848 3744 or 07834 275 083, [email protected]


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