Minister calls for pension reform

By Paul Lewis
BBC Radio 4's Money Box

The cabinet minister in charge of pensions has said everyone should be entitled to a basic state pension without having to pay National Insurance contributions for 40 years.

In an interview published in The Daily Telegraph on Saturday, Work and Pensions Secretary Alan Johnson said:

"The first question is: should everyone be entitled to retire on the basic state pension? Yes is the answer, irrespective of their contributions."

He said the change would particularly help women and pointed out that less than a fifth of them get a full state pension at retirement, and barely half get any state pension at all, compared with 90% of men.

"The current system is unfair to women... You cannot sustain an argument that says we have a more equal workplace for women... then when women get to pension age it is back to inequity.

"If we could get to a situation where women had their full state pension in their own right, then at least there would be equity," Mr Johnson said.

'Very significant'

At the moment people need about 10 years of working and paying full National Insurance contributions to get any state pension, and around 40 years to get the full pension of £79.60 a week.

Under a "universal" or "citizen's" pension everyone would get the pension based on a simple residence test.

Alan Johnson is quite right to say that the pension system is not working well for women in the modern world Mervyn Kohler, Help the Aged

Mervyn Kohler from Help the Aged told BBC Radio 4's Money Box that Mr Johnson's commitment to change was very important:

"This is very significant, coming from the secretary of state for pensions.

"There is a general consensus out there that our state pension arrangements are very inadequate, particularly inadequate for women.

"They were after all designed in an era when men worked and women did not; when nearly everybody got married and stayed married to the same person.

"Well that world has gone. And Alan Johnson is quite right to say that the pension system is not working well for women in the modern world."

One option

Although the radical change to a citizen's pension is not government policy, a spokeswoman for the Department for Work and Pensions confirmed to the BBC that Alan Johnson's idea for a universal pension was being discussed, but it was "one of a number of options".

She added that it was expected that whatever reform was adopted, the earnings-related additional pension would still be paid on the basis of contributions.

Mr Johnson was appointed in September, and is widely seen as an ally of the Prime Minister rather than Chancellor Gordon Brown, who prefers targeting benefits on the poorest pensioners rather than paying the same pension to everyone.

We are going to see some significant changes and I hope this will be part of it Mervyn Kohler, Help the Aged

Other critics of a universal pension say it would be unfair on those who had paid their National Insurance contributions - which are up to 11% of pay - if people who had paid nothing got the same pension.

Mervyn Kohler told the programme he disagreed:

"There is a nostalgia for this process but that principle has been challenged.

"We already pay toward the NHS and we must modernise our pensions to reflect the new world of labour. It is not just women who do badly.

"People working internationally, taking part-time work, taking breaks for re-training or career breaks, all of them are losing out under the existing arrangements.

"I think there is immense pressure for change. We are going to see some significant changes and I hope this will be part of it."

BBC Radio 4's Money Box was broadcast on Saturday, 4 December, 2004 at 1204 GMT.

The programme was repeated on Sunday, 5 December, November, at 2102 GMT.