The DWP has published the response to its April 2011 consultation on state pension reform (see Pensions Update, April 2011). There was broad support for the proposals, and the DWP indicates that more detailed proposals may follow.

The consultation asked about the most appropriate mechanism for determining future changes to state pension age: either through a formula linked to life expectancy or by increasing state pension age through a review or by a combination. Most respondents were in favour of a more automatic mechanism, with some form of periodic review built in. Nearly all respondents noted the importance of giving sufficient time to prepare for any changes to state pension age.  

It also proposed two broad options for reform of the state pension, either:

  • making S2P flat-rate more quickly (by 2020); or
  • replacing the basic state pension, S2P/SERPS and the means-tested Pension Credit with a single-tier flat-rate pension of around £140 p.w. and abolishing DB contracting-out by the end of a transitional period.

Most respondents were in favour of the single-tier option (which the Government also clearly prefers), though they noted that the transition would be long and complex, with communication to individuals being seen as a major challenge. The ending of DB contracting-out would have to be carefully managed. There would be a significant cost to employers, in particular in changing scheme rules, but these challenges were not insurmountable.