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Government outlines flat-rate state pension

A radical shake-up of state pensions has been outlined by the Government today.

The coalition's proposals include a single flat-rate state pension, worth around £144 in today's money, to be introduced for new pensioners from 2017. The actual sum will rise with inflation over the next few years.

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The reform will create a flat rate pension based on 35 years of National Insurance contributions. It is aimed at helping women, low earners and the self-employed, who under existing rules find it almost impossible to earn a full state pension.

The plans have been described by critics as little more than a "con trick".

But the Government says women, for example, would be helped because they would not be penalised for taking time out of work to bring up children.

If you belong to a "contracted out" pensions scheme, where some of your National Insurance contributions go towards a private scheme, rather than your state pension, you will pay additional NI, though it means you could get a larger state pension.

This will particularly affect public sector workers such as teachers and nurses.

Current pension landscape

Those retiring now only need to contribute for 30 years to get the full basic state pension.

The new regime would replace the present system of a basic state pension; the second state pension; and pension credit, which tops up people's income.

Pensioners currently get £107.45 per week (£107.70 for those aged 80 and over) via the basic state pension. It is impossible to give a sum for the second state pension, as it is dependent on how much NI you pay during your working life.

Over-60s can get their income topped up to £142.70 a week via pension credit, if it is lower than that sum. Those with a modest income and savings can get an extra boost of up to £18 a week (see the State Pensions guide).

'Current system too complicated'

National Pensioners Convention general secretary Dot Gibson says: "Future generations are being asked to pay an extra five years of National Insurance contributions, work longer before they can retire and end up with less than they can get today.

"What the Government is trying to sell is a plan for people to pay in for 35 years, get £144 a week and have to wait at least until 68 before they can collect it. No-one should be taken in by what is little more than a con trick."

Ministers argue that by replacing the current system of add-ons and means-testing, the single tier will provide certainty for people about what they will get from the state and provide a better platform for them to save for their retirement.

Pensions Minister Steve Webb says: "The current state pension system is too complicated and leaves millions of people needing means-tested top-ups. We can do better.

"Our simple, single tier pension will provide a decent, solid foundation for new pensioners in an otherwise less certain world, ensuring it pays to save."

Additional reporting by the Press Association.

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