In response to the recent announcement by Pensions Minister, Steve Webb, the Chartered Institute of Personnel and Development (CIPD) has welcomed plans to introduce a new flat-rate pension, which it says could encourage more workers to contribute to private pension schemes by making the standard of living they can expect from the state pension much clearer to see.

Charles Cotton, Rewards Adviser at the CIPD, said:

“The zero-sum game of picking marginal winners and losers from the new flat-rate pension misses the point.

“This is a long-term decision, which has the real potential to bring about a step-change for the better in the retirement income of Britain’s employees. By creating a simple, easy to understand baseline pension, it will become a lot easier for employers and others to explain and encourage more workers to invest more in pensions savings to boost retirement incomes closer to the levels most would aspire to.”

He added:

“This should also help contribute to driving up the quality of workplace pensions. Without the simplicity of a flat-rate pension to explain what life on the state pension alone looks like, it has been difficult for the providers of good workplace pensions to use them as a competitive advantage to attract and retain the most talented employees. This change offers the prospect of changing that situation.”

Cotton continued:

“We recognise that some employees that still enjoy defined benefit schemes, especially those in the public sector, will have to pay more as they will pay higher national insurance contributions, but such schemes are still generous and affected individuals will also benefit from a higher basic state pension.

“Employers operating defined benefit plans will also have to contribute a bit more as they will no longer be eligible for a lower national insurance contribution charge, but the benefits of the changes should help firms better communicate the advantages of their pension schemes to recruit, retain and motivate talent.”