Select Committee on Work and Pensions Written Evidence


Memorandum submitted by Standard Life Assurance Company (PC 03)

SUMMARY

    —  The current state pension settlement is too complex for most people to understand.

    —  The Government should open consultation on a simple single replacement for the current system.

  1.  The current state pension settlement consists of a three-part structure. These layers become progressively complex, culminating in the State Pension Credit, which is almost impenetrable. With this level of complexity, there is little chance of engaging people. This is demonstrable from the low take-up rate of less than 70% for the State Pension Credit.

  2.  If the Government is to encourage people to save for their retirement then the benefit of doing so must be clear. People need to know what they will get from the state at retirement, in today's money terms, in order to judge whether it will be sufficient on its own or whether they should save privately.

  3.  As a country, we need to save more for our future yet the current retirement benefits system has the perverse effect of discouraging saving for many. Despite Government insistence that the Pension Credit is a reward for saving, the effective tax rate on savings is 100% on total income below the maximum Basic State Pension and 40% above it. People understand this and are choosing not to save. Advisers are advising people not to save because it is not in their financial interests to do so.

  4.  The Pension Credit has successfully lifted large numbers of people out of poverty, which was one of its key aims. But, it may create unnecessary poverty in the future, which will increase future claims on means-tested benefits.

  5.  None of this should come as a surprise to the Committee. There has been a constant stream of proposals suggesting reform of state pensions over the last three years. These come from a wide and diverse group of bodies: left-wing think tanks, right-wing think tanks, independent think tanks, employers groups, unions, politicians and representatives of private pension providers.

  6.  All of these groups say similar things—that we should have one simple state pension. There are subtle differences between each of these proposals; for example, some are based on qualifying contributions, others on citizenship. Regardless of these minor disagreements, this level of consensus is unprecedented.

  7.  Consensus is necessary if state pensions are to be reformed. That consensus is here now and the time is right for Government to consult on reforming state pensions.

1 October 2004





 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2005
Prepared 9 March 2005