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Insurers Call for Simpler State Pension Scheme
March 17, 2003
Britain's insurers have called on the Government to simplify and strengthen the state pensions system to help give future pensioners an unambiguous incentive to save.
The Association of British Insurers (ABI), which represents about 97% of the UK industry, has recommended a raft of proposals designed to shake-up the state pension.
In its response to the Pensions Green Paper, the ABI welcomed Government policies to increase the income of poorer pensioners but argued that the current state pension system was storing up problems for future generations.
The ABI is campaigning for a flat-rate and more generous state second pension that will lift the floor of state provision above the current minimum income guarantee.
It says this will remove the need for means-tested pensions credit, which compromises incentives to save.
Insurers are concerned that as means-testing is extended to people on higher incomes, too many people will decide that it does not pay to save, leading to greater reliance on state provision.
The ABI report argues that state pension reform is an urgent priority if the Government is to meet its target of raising the proportion of retirement income coming from private sources from 40% to 60%.
Among the key issues which require action, according to the ABI, is the problem that many people do not understand what the state will and will not provide.
Additionally, the gap between the basic state pension and the level of Pension Credit will widen over time, the ABI says, with one estimate suggesting that 82% of pensioners will rely on means-tested benefit by 2050, leaving many wondering why they should save and the government with a larger bill.
The ABI is also concerned that the extension of means-tested benefits
will mean that what people save now will directly influence the level of
public expenditure in the future.