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DWP consultation shows "overwhelming support" for a single-tier state pension

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A summary of consultation responses published yesterday revealed broad support for state pension reforms that could significantly reduce the need for pensioners to apply for pension credit.

Latest figures from the Department for Work and Pensions, show without reform, two million pensioners will still be eligible for pension credit in 2050.

The consultation 'A State Pension for the 21st century' proposed two options for reforming the state pension for future pensioners. Over three-quarters of organisations who responded favoured the single tier option in principle.

This option would raise the state pension to around £140 - above the level of the current means testing threshold and would significantly reduce the need for low income pensioners to apply for pension credit. Without reform millions would still need to apply for pension credit top ups for decades to come.

Minister for pensions Steve Webb (pictured) said: "In spite of our best efforts to encourage take-up, Pension Credit has failed to reach over a million low income pensioners who are entitled to help. What we want to do is reform to create a simpler State Pension that won't leave people relying on means testing to make ends meet.

"A simple, decent state pension, that is easy to understand would give people more clarity and certainty about what they will get from the state. It is this clarity and firm foundation that will help people make decisions about saving for retirement - a crucial step as we prepare to enrol 10 million people into workplace savings from 2012."

Ministers will now consider the feedback from the consultation and bring forward more detailed proposals for state pension reform.

Commenting on the response, Joanne Segars (pictured), chief executive of the National Association of Pension Funds (NAPF), said: "It is encouraging to see such overwhelming support for State Pension reform, with the Single-Tier option being singled out as the preferred choice.

"A simpler and more generous state pension of £140 a week would trigger a series of positive effects, benefitting millions of people. "It would take millions off means-tested benefits, and would also help ensure that people have a strong foundation on which they can build their retirement savings. People would be encouraged to save more for their old age. Yet it would cost taxpayers no more than the current system. "A single-tier pension is a necessary component to make the upcoming pensions auto-enrolment reforms work.

"However, a single-tier state pension would mean the end of contracting out for Defined Benefit pensions. This would have significant implications for employers, schemes and members, and needs to be managed carefully. "Today's clear backing of a Single Tier State Pension confirms that people are ready for a revamp of the State Pension. The Government has the clear political support needed to carry out such a reform, and we hope that it presses ahead with it swiftly."

Analysis recently carried out by the Pensions Policy Institute (PPI) for the NAPF has shown that under the existing state pension system a third (35%) of all pensioners - or 4.4 million people - would be eligible for pensions credit, a means-tested benefit, by 2055. But Segars believes under a single tier state pension this would plummet to just 5% - or 0.8 million people.

And according to a Populus survey for the NAPF, 60% of people who haven't retired would save more for their retirement if they knew that they would receive a State Pension of £140 a week in today's money. Thirty-five per cent would put more money into other forms of savings for retirement, while 25% would pay more into their pensions that come with their job.