On 14th January the Government published a White Paper containing its proposals for a new state pension system.
In terms of the reforms the current system, which includes means-testing and add-ons, will be replaced by a flat rate pension. The proposals mean that people retiring after 2017 will, based on 35 years National Insurance contributions, receive a flat rate pension currently assessed at £142.70.
The Government believes that the new system will benefit women, low earners and the self employed, who under existing rules find it difficult to earn a full state pension.
The hope is that the Single Tier will provide certainty to people about what they will get from the state and provide a better platform for them to save for their retirement.
“Such radical state pension reform is long overdue and it will be a huge step forward to have a single, flat-rate state pension, without mass means-testing in future,” said pensions expert, Dr. Ros Altman. “This will make it safer to save, which is essential as auto-enrolment extends across the workforce.”
The Government believes that the key benefits from these reforms are:
* 750,000 women who reach pension age in the decade after Single Tier is introduced will on average get an extra £9 a week
* Under the present system, 4.2 million self-employed people are prevented from getting a full state pension. The Single Tier should properly recognise their NI contributions.
* By the 2040s, over 80% of people reaching State Pension age will receive the full weekly amount of single-tier pension.
* A significant reduction in means testing. The proportion of people reaching State Pension age after the introduction of single tier who qualify for Pension Credit will be halved compared to the current system, and remain under 10% up to 2060.
The hope is that these changes will provide people with a platform to save for their retirement and follow last October’s introduction of automatic enrolment.