Lib Dems call for simpler and cheaper pensions plan

Anyone who has lived in the United Kingdom for 20 years or longer would receive a state pension equivalent to £109.45 a week under a new plan unveiled by the Liberal Democrat leader, Charles Kennedy.

The Citizen's Pension would be funded by making those who are now under 40 work until the age of 67. It would also be simpler and cheaper to administer than the current mix of pensions and state benefits, Mr Kennedy said.

The Liberal Democrat plan - the brainchild of the party's work and pensions spokesman, David Laws - received a mixed response, with the Tories calling it a policy U-turn, and charities claiming that a higher pension age would discriminate against the poor.

All sides agree, however, that Britain is facing a pensions crisis, with the pensioner population projected to increase from 11 million to 16 million over the next 30 years. The Pensions Commission, chaired by the former Confederation of British Industry director general Adair Turner, is due to report next week.

The Government has brought in pension credit to ensure that no single pensioner lives off less than £109, or pensioner couples on less than £165.

The Liberal Democrats say the credit should be scrapped, along with the second state pension, to help pay for a better universal pension. They say some women receive a poor deal from the present system, which is based on national insurance contributions. "We have one of the lowest state pensions in the developed world, and one of the most complex systems. Women, in particular, suffer real discrimination," Mr Kennedy said.

MPs have one of the best pensions deals in the country, and the Liberal Democrats say they should lead by example by bringing their pension arrangements into line with other public sector employees. Under Mr Laws' plan, pensions would rise every year in line with earnings.

Sir Malcolm Rifkind, the shadow Work and Pensions Secretary, said: "When he was the Lib Dem director of policy, Mr Laws said linking pensions to earnings 'would put us on an escalator to economic absurdity'. Now, as the Lib Dem pensions spokesman, he is proposing a system linked to earnings."

Paul Cann, policy director of Help the Aged, attacked the Liberal Democrat proposal to raise the retirement age, but welcomed the principle of the new pension. "Life expectancy of the least affluent workers is much lower on average, so raising the entitlement age for the state pension will mean many older workers may never receive the increased package the Lib Dems are demanding," he said.

The Social Market Foundation is publishing a report today that will also call for a citizen's pension paid to all UK residents. But the think-tank also proposes a second tier pension based on compulsory savings in a private fund, and a third tier, based on voluntary contributions.