By Steve Webb, MP

“THE Pensions policy in the UK is a mess – a coherent vision for the 21st century is urgently needed. The Liberal Democrat proposal for a Citizen's Pension addresses two fundamental problems: the long term effects of mass means–testing and discrimination against women in the pensions system.

For the last 25 years, since the link to earnings was broken, the pension has been devalued year on year.
Today, around half of all pensioners are eligible for the Pension Credit, in 20 years time that rises to three quarters of pensioners. Means–testing the many and not the few erodes returns to saving and reduces incentives to save. The vast majority of people will find that a pound saved will not make them a pound better off in retirement. This is unsustainable and exacerbates the likelihood of a pensions crisis in the future.

At present, entitlement to the pension is based on National Insurance contributions. This system discriminates against women because women are far more likely to stop work to bring up children and care for family members. Only 13% of women have built up an entitlement to a full basic state pension on the basis of their own contributions compared to 87% of men. The vast majority of women have to rely on their husband's contributions in order to receive a pension. Our proposals for a Citizen's Pension would guarantee a decent pension starting with those over 75 as a first step towards extending it to all. By setting the pension at a decent level a million pensioners will be taken out of means–testing all together. Incentives to save become much clearer with every pound saved making you a pound better off in retirement. By basing entitlement on residency many women will immediately qualify for a pension much higher than the amount that they are currently receiving. The exact residence requirement would be decided on the basis of a recommendation from an Independent Pensions Authority which we would establish to take many of the decisions about pensions policy out of the party political arena. Two possible options are: 20 years spent in the UK since the age of 25, or the New Zealand model could be mirrored, where the requirement is for someone to have been resident for 10 years since the age of 20, 5 of which must be since the age of 50. Where an individual only partially satisfied the residence test, the rate of pension would be paid on a pro rata basis.

Payment of the Citizen's Pension would continue provided the person was resident anywhere in the EU, or another country which has a reciprocal arrangement over the payment of pensions.”