The government has announced that radical reforms to the state pension will start this year, fast-tracking changes to the current system.
Pensions minister Steve Webb said that significant changes to the state pension will be pushed through in 2013, with the intention of the reforms becoming law in 2017.
A flat-rate state pension scheme
The government’s plan is to reduce the state pension entitlement to £144 a week, or £7,488 a year, for people reaching state pension age in April 2017.
The government has had to grapple with significant problems relating to those who contracted out of the second state pension, who will see their state pension reduced to make up for the benefits of their additional pension. Their National Insurance contributions will also rise to the level paid by those who are contracted in.
The proposed solution is to allow those getting below £144 a week to claim extra benefits to counter the shortfall.
A streamlined process is essential to the government’s plans to allow for smooth progression to automatic enrolment into workplace pension schemes for all consumers.
Rapid changes to state pensions
Speaking on the issue of state pension reform last week, Steve Webb said: ‘The single tier is crucial to underpinning automatic enrolment. The pace now will be very rapid.’