Video: Pensions shake-up will reward savers, Government vows

The Work and Pensions Secretary said he wanted a state pension fit for the 21st century, easy to understand and that rewarded those who did the “right thing” and saved for their retirement.

Speaking at an event organised by Age UK yesterday, Mr Duncan Smith said: “We have to send out a clear message across both the welfare and pension systems: you will be better off in work than on benefits, and you will be better off in retirement if you save.”

Mr Duncan Smith warned reforms already under way, changing the retirement age and requiring firms to enrol staff automatically in private pension schemes, did not go far enough and the Government also needs to address the state pension. Although he stopped short of setting out details on what the new system would look like, the Government is known to want to introduce a flat-rate state pension, to ensure people who saved for their retirement were not worse off as a result of missing out on means-tested benefits.

There is speculation that this would be paid at about £140 a week, slightly above the £132.60 a week that single people currently receive through the basic state pension and means-tested pension credit.

A move to a flat-rate system would particularly benefit women, who often do not receive full state pensions after taking time out of work to look after children. It would also help people who currently qualify for the pension credit, but do not claim the money, either because they think the process is too complicated, or because they find it demeaning.

Joanne Segars, chief executive of the National Association of Pension Funds, said: “Radical state pension reform to create a single, simple and more generous state pension could take millions of pensioners out of poverty, and provide a firm foundation for saving for old age.”

Shake-up targets grey areas: Page 11; Comment: Page 12.