In a thought leadership paper, PricewaterhouseCoopers has proposed an improved Basic State Pension, which would rise by an amount significantly in excess of inflation, and an additional Government-sponsored savings account into which £1,000 a year would be paid out of National Insurance revenues. On retirement, the account would purchase a pension.
The paper also shows how, through a gradual withdrawal from means-testing, the barriers to increased voluntary savings can be significantly reduced while still protecting the poorest pensioners.
Key highlights from the PricewaterhouseCoopers proposals include a kick start to savings on a voluntary basis, minimal disruption to the structure of tax, Nation Insurance and employers’ plans, ensuring the most vulnerable in society are protected, and keeping costs affordable.
Trevor Llanwarne, chief actuary for pensions at PricewaterhouseCoopers, said, “If State Pensions is considered as a supertanker, then our proposals are about steering the right course, rather than deciding on a specific destination port in 50 years’ time. We offer this paper as a contribution to the national debate on State Pensions and hope that, by doing so, we can assist in building the consensus that the Government is seeking.”
“Our proposals rate highly against each and every one of the Government’s six principles set out on 24 February 2005. Through a variant of the citizen’s pension approach, poverty and fairness are tackled. Savings are given a kick start and sustainability is delivered through the inherent flexibility and cost-effectiveness of what is a much simpler and more easily understood system going forward.”
The paper also advocates increasing the Basic State Pension (BSP) at a rate significantly above inflation and ensuring that the total State pension (BSP + NDC) rises at a faster rate than the minimum income guarantee, which determines pensions credit eligibility. The proportion of pensioners relying on means-tested benefits would therefore decline gradually over time, rather than rising steadily under the current indexation regime. Under the proposed new regime, an individual could therefore confidently expect not to be reliant on means-tested benefits in retirement from 2027 onwards.