Up to 10 million pensioners could be moved off means-tested benefits with the introduction of a flat-rate citizens' pension, the body representing workplace pension schemes said today, but the scheme could mean increasing the state pension age to 69. 

The National Association of Pension Funds (NAPF) said a citizens' pension worth £109 a week, and introduced in 2010, would cost the government no more than the current state pension system, if the money spent on the existing pension, the state second pension and the pension credit was all redirected.

It said increasing the new pension in line with earnings could be funded in several ways: the state pension age could be raised to 67 by 2030 with national insurance contributions increased to 1.5%; or a further increase in the pension age to 69 introduced by 2040. 

NAPF said its proposals would result in a simpler, fairer pension system, which would provide a more secure guarantee against poverty in later life. 

Instead of being based on national insurance contributions as the current system is, entitlement to the citizens' pension would be based on residency in the UK. 
NAPF said that while this proposal has met with criticism from some sources, a residency scheme produces a similar result to the existing system and is simpler and cost-effective to administer. 

It would also prove fairer to women, carers and part-time workers who lose out under the current system. 

"Since our original proposals for a citizens' pension were published three years ago, the debate on pension reform has moved on significantly," said Christine Farnish, the NAPF's chief executive. 

"The principle of a simple, adequate, first-tier state pension available to all, has become the basis for a growing consensus among opinion formers in the pensions, political and academic arenas." 

She said the public wanted a simpler, fairer system, which did not penalise those who had taken career breaks or mean pensioners undergoing means testing. 

"The citizens' pension meets these criteria, and makes the whole pensions landscape much clearer. The "deal" from the state is £109 a week. 

"For anything above that, you have to save through a workplace pension or other savings arrangements. There would be an opportunity for government to look again at designing more effective incentives for such savings." 

NAPF first suggested a radical overhaul of the pensions system in October 2002, and made more detailed proposals for a citizens' pension in December last year. Its final report and recommendations have been published today.