The government has revealed plans to introduce reforms to the nation’s state pensions system, in a bid to encourage more people to save towards their retirement.
The coalition government aims to simplify the system for state-provided pensions in a similar way to recent proposals relating to state benefits – introducing a single “universal credit” system.
Currently pensioners receive a total of around £56 billion in basic state pension payments each year – however this figure is expected to steadily grow as the retired population increases in coming years.
Iain Duncan Smith, the Welfare and Pensions Secretary, acknowledged that “the state pension system is so complex that most people have no idea what it will mean for them now and in their retirement”. He also expressed concerns that the current means testing system effectively discourages many people from saving for their retirement.
He said: “We have to fundamentally simplify the system. And we have to make it crystal clear to young savers that it pays to save.” The government’s proposals could simplify the current variable system to a standard rate for all pensioners.
Such a move could mean higher pension payments for women who have spent periods out of work to care for children, and therefore contributed less in National Insurance contributions.