Details of a new flat-rate state pension thought to be worth £155-a-week will be unveiled later on Monday.
It will replace existing means-tested arrangements for new, but not existing, pensioners from 2015 or 2016. The current full state pension is £97.65-a-week, but is topped up to ensure a minimum income of £132.60.
This is to be replaced by a new £140 flat rate, with inflation expected to push this up to £155 by the time it comes into effect.
“Tomorrow’s pensioners do face a very different world,” said Pensions Minister Steve Webb.
“They will, on average, be working for a lot longer, they will be retired for longer, they will not on the whole have final salary guaranteed pensions in the way that perhaps their parents did.
“We therefore need a simpler, clearer foundation because more of them will now be asked to save for their retirement.”
Work and Pensions Secretary Iain Duncan-Smith has also indicated that the retirement age will rise to 66 for both men and women by 2020, as European law requires the same age for both genders.
Changes
Plans for a universal, flat-rate state pension have been discussed for a number of weeks. Final confirmation of the government’s intentions was given in Chancellor George Osborne’s Budget on 23 March.
He said that the flat-rate pension would only be available for new pensioners reaching state pension age, rather than the millions of existing pensioners. The government wants to simplify the state pension.
The planned reform would mean the state second pension would be abolished, although the government would honour contributions that had already been made ahead of the change.
It would also bring “contracting out” arrangements to an end, where some people pay lower National Insurance contributions because their second state pension is contracted out to their company final salary pension scheme.
Details of how they would be affected are likely to be revealed in the government’s full plans.
More than one-and-a-half million eligible pensioners do not claim pension credit, and the government believes that such individual losses of entitlement would not occur under a simpler flat-rate system.
However, there is likely to be debate about the fairness of a flat rate that makes no distinction between poor and wealthy pensioners.
Under current arrangements, a minimum income guarantee ensures couples get £202.40 a week through the means-tested pensions credit.
Source : BBC News Business
