From the TUC

The flat-rate pension runs into the sand?

05 May 2011, by in Pensions & Investment

Legislation to introduce a flat-rate pension will not be introduced in this parliament Lord Taylor of Holbeach has told the House of Lords today.

The programme for this is not of a rushed implementation.

This is not likely to be something that will be legislated for in this Parliament but in some future Parliament.”

And when pressed by Labour’s Lord Tomlinson, who said:

If we have two different levels of state pension – one for existing pensions and one for new pensioners – that is exactly the sort of injustice that, in other circumstances, were it challenged at judicial review, the challenge would be upheld.”

Lord Taylor said that the Government would

clearly seek to avoid such a situation – that is the reason for the consultation. This is a necessary reform and one that needs to be addressed by the Government, which is wanting to take things forward,” he said.

He also said that reports that the flat rate pension would be set at £155 a week were media “speculation.”

It looks as if Lord Taylor had to step in at the last minute to answer this question as DWP minister Lord Freud was unfortunately run over by a motor-cycle on his way to the Lords, but we can assume that he was using the same brief.

As I argued earlier there is a strong progressive case for a flat-rate pension, but if the change is made without putting extra cash into basic pensions and setting the flat rate rather higher than planned there will be a lot of losers including many low and middle income workers.

Abolishing the state second pension would end the rationale for contracting out. This would also impose an immediate extra burden on members of contracted – out pensions schemes. This includes all members of public service schemes and the big majority of private sector defined benefit schemes. There have been many final death knells announced for DB pensions, and this would be a contender for that title.

And as Lord Tomlinson said it could mean very different pensions for people of slightly different ages. The winners will no doubt be somewhat grateful, but the losers will be very cross indeed.

Pensions Minister Steve Webb backs a flat-rate pension for good reasons, but unless the Treasury is prepared to put some extra money in – and the obvious source is a further limit on tax relief – it does not look like good politics.

Perhaps today’s announcement is a recognition of that.

Update PA reports that a DWP  spokeswoman has said: “We have launched a consultation on April 4, setting out plans to simplify the state pension, including the option of a single tier pension. No decisions on timing have been taken.”

One Response to The flat-rate pension runs into the sand?

  1. tony
    May 18th 2011, 4:50 pm

    Why has there been very little media coverage of the Consultation Paper requesting the the public to forward their comments? I had to search the internet to get the information this subject is very important as it affects millions of retired people who are living a very miserable existence and all they need now is a further reduction in the living standards. Personally I consider the proposals ill thought out and if a two tier system is ever intrduced the repercussions would no doubt be disastrous for the political party having the nerve to proceed any further.