A new universal flat-rate "Citizen’s Pension", worth about £100 a week in today’s terms and earnings-linked (ie the level of the Minimum Income Guarantee), is the central recommendation of the NAPF’s new contribution "Pensions - Plain and Simple" to the current debate about the future of retirement. The Citizen’s Pension (CP) would replace the Basic State Pension, State Second Pension, Minimum Income Guarantee and the Pension Credit - a major simplification in its own right. Raising State Pension Age from 65 to 70 between 2020 and 2030 will, it is argued, make the proposal cost -neutral. Little is said about eligibility - we may assume every individual, single or married, will be entitled to the CP - aside from a vague 'residency test' (here government would do well not to repeat the present unfairness towards hundreds of thousands of pensioners who have removed themselves from being a burden on the NHS or the state in any way, by emigrating eg to Australia: their reward is a state pension forever frozen at the level it comes into payment).

Other key recommendations in "Pensions - Plain and Simple" are:

• abolish contracting-out and NI rebates
• abolish restrictions on retirement age and allow employees to draw a pension while carrying on working for the sponsoring employer (already apparently part of the Government’s own plans for simplification)
• abolish Revenue Limits on benefits from approved occupational pension schemes
• abolish contribution limits for personal pension and stakeholder schemes
• allow full concurrency and a single category of contract-based DC schemes (thus no longer any need for AVCs and FSAVC schemes)
• provide tax incentives to encourage employers to run pension schemes and individuals to contribute to them, including relief from NICs on pension contributions and abolition of stamp duty on equities (worth over £90 pa per individual pension scheme member)
• offer better pension protection for occupational pension scheme members nearing retirement whose employer goes bust.

Aries comment

The NAPF acknowledges that it is not simply the complex nature of the pensions landscape acting as a deterrent that is responsible for the growing 'retirement savings gap'; "many people have little money to spare and face competing priorities on how it might be spent". Additionally, "consumers may know and understand that saving for a pension is the 'right thing to do', but experience in the UK and elsewhere shows that they do not tend to behave rationally . . . today's pressures tend to trump tomorrow's aspirations." (This year's Nobel Prize for Economics has just been awarded for work which challenged the assumption that people make rational decisions.) Yet how adequate is £100 a week (about 22% of NAE) for a "decent" retirement? This NAPF proposal in fact deliberately restricts the overall cost of the State system to its current planned level as a percentage of GDP, despite being already one of the least generous in Europe - one reason why labour costs are also low in the UK. (DWP figures just released [PDF] show that at 31 March 2002, the average state pension being paid out, without the MIG top-up, was £88 pw for a man and £64 pw for a woman.)

The NAPF believes that people can be enabled to build on the £100 pw non-means-tested platform of the CP. It is arguable how many people will in practice be able to carry on working past 65 or 70, even if financially motivated. The merits of pension provision through the workplace (economies of scale, pooling of risk, deduction of contributions at source, etc) are well-argued in this paper and multi-employer schemes encouraged as the way forward for smaller businesses. However acknowledging that stakeholder-type schemes could help too, "preferably with an employer contribution", is about as close as the NAPF can come to recognising that individuals simply cannot, on their own, achieve anywhere near a decent pension. A new study by PricewaterhouseCoopers also published this week illustrates the grim prospect: even a (very fortunate?) man with an unbroken 45 year work record at UK average levels of earnings and pension contribution rates is likely to retire at 65 on a private pension of only around 30% of his final salary, with the basic state pension topping it up to around 37% of NAE.