'Axe unfit system for Senior Citizens’ Pension and ISA'

The State Pension is not fit for purpose and should be replaced with a Workplace ISA and a new residency-based Senior Citizens’ Pension, a think tank says. The proposal, published today, was dismissed by the National Audit Office, which has also released a study on the state pension, saying, in contrast, that it has been a success so far.The Centre for Policy Studies claimed the state pension is “facing fiscal calamity”, citing figures that total spending on it has increased by 25% since 2010-11 and saying it needed “bailing out” with a £4.6 billion Treasury grant in the last year.But the NAO said it was “simply wrong” to describe the National Insurance 'Fund' as requiring a Treasury bailout. It stated: “The idea of a Fund that disburses the payments is a myth and state pension costs are met on a pay-as-you-go basis.”The CPS proposed the state pension should be put into “run-off”, so that, from 2020, no further “entitlements” would be created and residency-based Senior Citizens’ Pension introduced, payable from the age of 80.All non-pensioners in 2020 would be eligible for it, with the first payments would be made in 2034. The payments would be perhaps set at £200 per week - 30% larger than today’s full State Pension, the CPS suggested.Additionally, it wants to see a Workplace ISA created to accommodate employer contributions made under automatic enrolment. This would be significantly pre-funded by the State via a 50% bonus, up to a modest annual cap, under these plans, with no access to assets permitted until 65.Michael Johnson from the CPS, whose work is credited as highly influential in the Government’s Lifetime ISA plans, said the purpose of the proposals was to “embrace the message that work pays, while providing a robust safety net for those who need it”.He said: “The report considers the hint within John Cridland’s recent interim report that he may recommend a more personalised approach to State Pension age (SPA). This is to be discouraged: there is a real danger that introducing different SPAs for different people could lead us down a slippery slope into immense complexity. It would be expensive to administer and could be highly contentious (potentially litigious). Consequently, the State Pension is no longer fit for purpose.”The NAO strongly condemned the CPS report and stated: “In short, this policy proposal is regressive, unfair, favours the better off and would consign the majority of British people to a much poorer retirement. It also does nothing to address the massive looming crisis in social care provision. Helping people save for social care requires new incentives to keep funds for later life, not encourage people to have tax-free spending money at age 65. ISAs are not suitable for retirement saving for the majority of the population.”Claire Trott, head of pensions strategy, Technical Connection, said: “The use of the term ISA feels like a ploy to try and engage with people who feel they understand ISAs but this is just another complexity and ISA and pension rules really shouldn’t be blurred like this, just as the Lifetime ISA has started to do. Bringing in more rates of “bonus” and more age and contribution restrictions will have just the same issue as all the rules surrounding what you can and can’t do in a pension that put people off in the first place.“I do believe that the cost of the state pension needs to be addressed, but moving the age from which people can access their benefits, again continues to undermine any trust in the system that still remains, there has to be another option.”Andrew Pennie, head of pathways, Intelligent Pensions, said: “No sooner do we get the new simple flat rate state pension and already there are talks about dramatically changing the system. Constant changes, and threats of future changes, simply serve to undermine people’s confidence and belief in the pension system, so much so that many simply choose to ignore it.“Mr. Johnson is right to point out the problems caused by rising longevity and the fact some people will benefit more from state pension than others. However, I struggle to see a material difference between a universal state pension age and a universal Senior Citizens Pension (SCP) – it will still be those living in better areas and with larger wealth who will benefit the most.“The proposals imply a compulsory Workplace ISA, even for the self-employed, and would also need to address the inadequate funding levels under the current AE system. The 50% bonus will undoubtedly be seen as a big carrot for many but by restricting access to age 65 the proposals appears to go against the spirit and flexibility of pension freedom and choice.”

'Axe unfit system for Senior Citizens’ Pension and ISA'

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