The government has confirmed plans for a flat-rate state pension to replace the current system of basic state pension and means-tested pension credit. New pensioners will receive £140, but existing ones will stay on basic pension of £107.45.
Flat-rate state pension
The flat-rate state pension is designed to remove the complexity of the present state pension system. In particular it will remove means-testing for pension credit, which many who are eligible currently fail to claim.
At the other end of the spectrum, it will end the system of second state pension (S2P) or SERPS, where employees build up additional income-related state pension. Under the new rules, all those who turn 65 (66 after 2020) will receive the same amount.
The Minister for Pensions, Steve Webb, said: ‘Our plans will radically simplify the state pension system and set it above the level of the means test, providing a fair and sustainable foundation for pension saving for people of working age.’
State pension age to rise
The Pensions Bill also confirms a further rise in state pension age from 66 to 67 between 2026 and 2028. It is already rising to 65 for women by 2018 and to 66 for both men and women by 2020. The government intends to make further increases in line with increases in longevity.
Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), said: ‘This is another big step towards a simpler, more generous state pension that no longer penalises people for saving. We are all living longer, so it is inevitable that retirement ages move upwards to reflect that. The trade-off for working longer must be a better state pension come retirement.’
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