Foundation pension too costly, Eagle warns

Speaking at the Labour Party’s annual conference in Manchester, the former pensions minister said her team at the Department for Work and Pensions (DWP) spent a great deal of time looking into the practicalities of vastly improving the basic state pension and reducing the second state pension.

The idea for a foundation pension has been taken up by current pensions minister Steve Webb, and supported by the National Association of Pensions Funds (NAPF) and Pensions Policy Institute, among others.

But Eagle said though the idea was sound in principle, it would cost too much and the current complex pension system would make it incredibly hard to implement.

She warned Webb would find it difficult to convince the Treasury to press ahead with the plan – with the added pressure of the departmental spending cuts – adding: “I have been in the DWP and I have been in the Treasury and I know who is going to win that battle. It’s not going to be a very even contest.”

Webb’s superior in the DWP, Iain Duncan Smith, has already had confrontations with the Treasury over his ambitious plans for welfare reform.

Also at the event was Joanne Segars, chief executive of the NAPF. She said she was fully supportive of Steve Webb’s campaign for a foundation pension.

“It is definitely theoretically possible, but we would like to see it become a reality,” she said. “Maybe a rise in the retirement age is necessary to achieve that."

She added: “If people know they are going to get £8,000 a year pension from the state they will definitely save much more for themselves."

But Eagle said: “There is a big argument – and we did a lot of work on it when I was a minister at the DWP – to have a simplification of pensions. But it takes time because we have an excessively complex system in place at the moment.”

Segars added: “We cannot think the 2012 reforms are the end of the road. It is the start of a new journey.”