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Radical overhaul for state pensions

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The government is looking at a major reform of the state pension system.

It is thought the overhaul will lead to a simplification of the current regime and an increase in the amount paid to pensioners.

The changes will mean that everyone will receive the same £140-a-week payment, but means tested top-ups will end.

At the moment, pensioners are entitled to £97.65 a week for single people and £156.15 for couples.

The poorest pensioners get means-determined additional benefits.

Under the new system, the means testing will go and all single pensioners will get £7,280 a year in state payments, with couples receiving £14,560 annually.

The details of the plan are to be published in a government green paper later in the year.

The government hopes that the removal of means testing will save some £6 billion in admin costs and that a single-tier pensions system would cut down on benefits dependency.

Women are likely to gain from the changes because they often fail to qualify for a full state pension for a lack of a complete national insurance payment record. This happens as a result of taking time out of work to look after their families.

A spokeswoman for the Department of Work and Pensions said: “The Chancellor has confirmed that the government will improve the quality and accessibility of pensions in the spending review period.

“We will be bringing forward proposals for reform in a green paper later this year. Our aim will be a simple, decent state pension for future pensioners, which is easy to understand, efficient to deliver and affordable.”

Instead of structuring pensions on means testing, the new system would be based on residency. British citizens or people who have been living in the country for a certain number of years would be eligible for a state pension.

People with savings which are over the income tax allowance threshold would not receive the full amount. And those who have opted out of the state second pension would have to pay slightly higher national insurance contributions.

The government intends to lift the state retirement age for both men and women to 66 by 2020.

It is thought that the new payment system will be in place before the rise in the age threshold.

Speaking in an interview, Vince Cable, the Business Secretary, said: “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 Steve Webb, the Pensions Minister, proposing is very radical. It will take time to introduce.”

Mr Cable added that 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”.