Pension reform 'to reward savers'
The Government is to embark on a fundamental overhaul of the pensions system to ensure that it "pays to save" for retirement, Iain Duncan Smith is to declare.
The Work and Pensions Secretary will say the existing state pension is too complex and that means tests for pensioners discourage lower earners from saving.
He will argue that pensions require the same kind of simplification that he is bringing to the benefits system through the Universal Credit.
"We have to fundamentally simplify the system. And we have to make it crystal clear to young savers that it pays to save," he will say during an address to Age UK.
Mr Duncan Smith will warn that younger workers are becoming "increasingly cynical" about saving and will not be able to afford a "stable and secure" retirement unless the Government does "something radically different".
The state pension age is already set to be increased in response to people living longer, and the default retirement age is to be abolished in October. The Government has also moved to require employers to enrol staff automatically in private pension schemes from next year to boost individual savings for retirement.
Tom McPhail, head of pensions research at Hargreaves Lansdown, said the changes are "the keystone which will support the weight of millions of people's retirement provision".
He added: "A simple, universal state pension will minimise the risk of people opting out of the auto-enrolment process, due to start next year; it will also ensure that everyone has a clear expectation of what the state will deliver for them, helping them to plan how much they need to save on top in order to deliver the retirement income they aspire to."
But shadow pensions minister Rachel Reeves said: "These are plans for new pensioners in the future. Vague promises of 'jam tomorrow' don't do anything for pensioners today. With higher VAT and fuel prices rising they want help now."
Maggie Craig, acting director-general of the Association of British Insurers, said: "The ABI would strongly welcome plans to simplify the state pension to establish a flat-rate payment. Ahead of the Budget the ABI has already written to the Government urging them to take this step. The current system is complicated, confusing and leaves many people uncertain of the benefits of saving."