Britain's pensions industry has called for the introduction of a "simpler, fairer Citizen's Pension" to lift 10 million future pensioners off complex means tested benefits. But it might also mean delaying retirement until the age of 69.
The National Association of Pension Funds (NAPF) said that a Citizen's Pension would reduce pensioner poverty, provide a far simpler state pension system on which to build additional savings, and would be fairer to millions of women, carers and others who miss out under the current system.
The NAPF's plan would see everybody meeting a simple residency qualification entitled to a basic state pension of £109 per week once they reached retirement age.
"The principle of a simple, adequate, first-tier state pension, available to all, has become the basis for a growing consensus among opinion formers in the pensions, political and academic arenas," said NAPF Chief Executive, Christine Farnish.
"People want a simpler, fairer system, which does not penalise women who have taken work breaks, and which does not subject millions of pensioners to means testing."
Research carried out for the NAPF by MORI indicates public support for key aspects of the Citizen's Pension, with four out of five Britons supporting the idea of equal pension payments for men and women, even where women have taken work breaks, or are working part-time on low salaries.
"The Citizen's Pension makes the whole pensions landscape much clearer," Farnish added. "The "deal" from the state is £109 a week. For anything above that, you have to save through a workplace pension or other savings arrangements. There would be an opportunity for government to look again at designing more effective incentives for such savings."
The NAPF argues that a Citizen's Pension, if introduced in 2010, would cost no more than the current state pension system, provided the money currently spent on the Basic State Pension, State Second Pension (including contracting out rebates) and Pension Credit was used.
But the future cost of raising the Citizen's Pension in line with earnings would have to be addressed in different ways.
The state pension age would need to be increased to 67 by 2030 with either an increase in National Insurance contributions of up to 1.5 per cent, or a further increase in state pension age to 69 by 2040.
Meanwhile, the removal of £3-4 billion of contracted out rebate money from final salary private sector pension schemes would allow those schemes to redesign benefits to offset the cost, and would enable hard-pressed employers to hand a tranche of their pension liabilities back to the state, reducing the "liability overhang" in final salary schemes.