Vince Cable vows 'decent' state pension for all

The government is planning a "very radical" overhaul of the state pension, Business Secretary Vince Cable says.

He did not confirm newspaper reports that it could rise from about £97 a week for a single person to £140.

But Mr Cable said the proposals, such as replacing means-tested pension credits with a flat-rate payment, would ensure a "decent" retirement.

Critics said it sounded "too good to be true" and unaffordable, despite savings in administration costs.

At the moment, pensions are topped up to £132 a week for the poorest, through the means-tested pensions credit.

But Lib Dem pensions minister Steve Webb, who has come up with the proposals, wants to scrap the existing system and replace it with a flat rate of £140 a week for everyone.

The changes would particularly benefit those who have paid less into National Insurance. Some women who currently fail to qualify for the full basic state pension because they have stopped working to raise children and therefore lack enough NI contributions.

The reform would be paid for, in part, by savings in administration costs when means testing is scrapped.

It is thought those who have opted out of the state second pension would also have to pay slightly higher National Insurance contributions.

Explaining the proposals, Mr Cable told the BBC: "It's to make sure people can look forward in retirement to a good state pension without means testing. We need something people can rely on.

"What he's proposing is very radical. It will take time to introduce."

The Daily Mail reported that a British residency requirement would replace the means-tested element.

Mr Cable also said the aim of the proposals was to "ensure that fewer and fewer pensioners are dragged into the means-tested system and they have a decent state pension that they continue to rely on. But... this depends on the state of the public finances as to when this is phased in."

The Department for Work and Pensions said proposals for reform would be published later this year in a Green Paper.

A spokesman said: "Our aim will be a simple, decent state pension for future pensioners, which is easy to understand, efficient to deliver and affordable."

Shadow work and pensions minister Douglas Alexander said Labour wanted the government to produce full details of the plans "so that people can make an informed judgement".

He said Labour's introduction of the pension credit - designed to help pensioners on low incomes who have some savings - had already provided a guaranteed minimum income, which for 2010-11 was £132.60 for a single person.

"By the time the measure floated today would be implemented, uprating will have raised that minimum income to around the same level," Mr Alexander said.

"What I would be worried about is the government using headlines like these to try and hide the fact that pensioners will be hit hard, without any compensation, by January's VAT rise and last week's changes that hit pensioners who have saved for their retirement."

Labour peer Baroness Hollis, who published a pamphlet last year proposing a flat rate pension of £132, said she was "absolutely delighted" by the proposals, which she said would be affordable because of plans to move forward an increase in the state pension age.

The National Association of Pension Funds (NAPF), which has described the UK's state pension as the "worst in Europe", says it would welcome simplification and less bureaucracy.

But Anatole Koletsky, principal economic commentator at The Times, said the proposed pension changes were not affordable.

"The sums simply do not add up. If something sounds too good to be true it usually is. There is no way that this system can pay for itself."

Despite claims about savings in administration costs, he told BBC Radio 4's The World at One: "It is arithmetically impossible to make everybody better off".

Chancellor George Osborne announced in the Spending Review last week that the state pension age for both men and women would rise to 66 by 2020 - six years earlier than had been planned by the Labour government.

BBC News website readers have been sharing their thoughts on the reported plans. Here is a selection of their comments.

I am penalised because I stayed at home with our children when they were very young. I only get 60% of a full pension because of my husband's contributions. Before he was 65, I received 29p a week - it was more of an insult than receiving nothing. At last it looks like things will be corrected - I just hope all this happens before I die. Kath Rhodes from Newcastle-under-Lyme

Once again, those who have never worked will be able to receive the same state pension as those who have worked all their lives and paid full National Insurance contributions. Can't see how this is encouraging people to work at all. Pauline White, UK

I am over 80 and, while I get certain small benefits which are age related, the fact is that I am finding it more and more difficult to manage as I get older. I worked all my life and paid into the state system and only want enough to last me for my remaining years. David Walter Solihull, West Midlands

I have paid into the scheme all my working life and have made enough for a full pension. I have had to retire early because of my health. I was told I did not have enough wrong with me to get benefits despite not being able to work. I have moved to Italy where the weather has improved my health but I still take over 30 pills a day. Am I now to understand that the government plans to steal my pension as well because I do not live in the UK? Giorgio Miles, Italy

These changes are all good and I applaud the measures that are proposed. However, is the new government ever going to think about the ex-pats who live in Commonwealth countries? We paid our fair share of contributions towards a British State Pension but find that, because of where we live, our pensions are frozen. James Hollins, Barrie, Canada

Does this mean that those of us who were persuaded in the past to purchase extra weeks of National Insurance to ensure a full pension will get our money back plus inflation? What about those people who paid extra into the various schemes over the years? Will their extra pension be preserved? David Wilson, Wokingham