Only rich will gain from pension reforms

Last updated at 00:01 20 July 2006


The Government's proposals to reform the UK pensions system will benefit the rich more than the poor, a think-tank claimed today.

The Pensions Policy Institute said the reforms put forward in the Pensions White Paper would change the overall income distribution of older people very little.

But it warned that some of the poorest pensioners would not gain significantly from the reforms, which would if anything actually give more money to people on higher incomes than those on lower ones.

It also claimed that most people would get less than the £135 a week from the reformed state pension that the Government said they would receive.

Instead it said because of the long transition, gaps in coverage and the continued link of the State Second Pension to prices rises rather than earnings, the majority of people over state pension age may not have as much as £135 a week even by 2050.

The group also warned that the Government may have under-estimated the proportion of people who would still be eligible for the means-tested Pension Credit in 2050.

It said the Government thought around a third of retired people would still be receiving it, but it could be as many as two-thirds, an increase from around four million people today to six million.

The group claimed that even a very successful National Pensions Saving Scheme (NPSS), or Personal Accounts as the Government calls it, would not significantly reduce the number of people eligible for the Pension Credit.

Under the NPSS everyone who did not have access to a better occupational pension would be automatically enrolled into the scheme, into which they would contribute 5 per cent of their pay and their employer would pay in 3 per cent.

But the PPI warned that the White Paper did not provide the certainty of a solid state pension foundation that was needed in order for the scheme to be successful.

Alison O'Connell, director of the PPI, said: "The uncertainties in the number of people still receiving low pensions from the state and who may be eligible for the means-tested Pension Credit in future need to be acknowledged, as do the continuing complexities in the system.

"The plans for Personal Accounts will be especially challenging without resolving these issues.

"We urge the Government to publish more details of its own analysis to allow people to assess the critical assumptions made and understand how outcomes might vary with different assumptions."

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