Press release

Government's pension reforms will give lower paid bigger incentive to save

The Government’s reforms to the state pension will work with automatic enrolment to boost pension-saving among low and medium earners.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

The Government’s reforms to the state pension will work with automatic enrolment to boost pension-saving among low and medium earners, government figures published today show.

The more rapid reduction in means-testing following the introduction of the new single tier state pension will help people to save more and have less taken away in benefit reductions, according to new research by the Department for Work and Pensions.

Pensions Minister Steve Webb said:

Our changes to the state pension, together with wider welfare reforms and automatic enrolment, mean we’re giving lower paid people the biggest incentive to save for a generation. We’re making it more worthwhile for people, particularly those on low incomes, to save for their old age.

The amount people’s benefits are being reduced because of their income from pension saving - the marginal deduction rate (MDR) - is falling over time. But DWP’s figures show this will receive an extra boost from its pension reforms. People will be better off saving when the government’s changes to both the state and private pension systems are fully in place.

People retiring now will find that, for every ten pounds they have in a pension, they will lose an average of three pounds in benefits entitlement. After the reforms, people starting out in the workplace now who retire in 2060 will keep an average of nearly nine pounds in ten of what they save.

Steve Webb added:

As we give 11 million people the chance to save into a workplace pension, with a contribution from their employer, these figures show why we must also reform our state pension to ensure that it pays to save.

Notes to Editors:

  • A copy of the DWP’s report, Enabling and encouraging saving: the evidence around pension reform saving, is available at:
  • The single tier pension will be set above the basic level of means-tested support, reducing people’s interaction with means testing and so clarifying incentives to save.
  • Removing Savings Credit will simplify the state pension system. Because of this the reforms are expected to reduce by a half the proportion of pensioners retiring after 2017 who are in the scope of means-tested Pension Credit by 2020.

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Published 14 February 2013