The Department for Work and Pensions is believed to be on the verge of agreeing with the Treasury that flat rate pension of around £140 a week should be payable to all.
Pensions minister Steve Webb is understood to have finalised the details of the policy, which is designed to remove the risk of legal action against the government in the event that people automatically enrolled into pensions from next year end up worse off as a result of having done so.
The Treasury is believed to have accepted the principle that the policy should be adopted if the risk of a misselling action is genuine.
It is understood that the flat-rate pension would be higher than the Pension Credit, currently £132.60 for a single person, and would be made up of a basic pension payable to all of around £100, with secondary pension of £40 for those who had never contracted out of state second pension or Serps. The DWP hopes to implement the policy in 2016. The £140 figure is in as at today’s rates, and will be upgraded in line with inflation by the time of implementation of the policy.
Figures from Saga show that on the government’s own figures, £2 billion worth of pension contributions will be entirely wasted in the first five years, because of the 5 per cent of people could end up getting less than they contributed. It adds that this figure is calculated on the basis of what it calls ’generous’ 3.5 per cent real investment returns and annuity rate assumptions.
Dr Ros Altmann, director-general of Saga says: “This would be a really welcome and essential move to get to the position where it pays for everybody to say.
“If it does not then the government will be exposing itself to a potential claim to the Parliamentary Ombudsman years down the line from the millions of people who could be worse off as a result of automatic enrolment.
“If the government does not introduce this flat rate pension while still going ahead with automatic involvement, it would be behaving like an unscrupulous financial adviser, selling unsuitable financial products to unsuspecting people without warning them of the risks. The government knows that if it warns people about the risks they will not join the scheme.
“The people most likely to be hit hard by this will be over 50s and women, as they are the ones least likely to be able to escape the benefits trap.”