The government will announce details of the biggest pensions overhaul in a decade today
The new flat-rate pension is likely to start in April 2017, with a new weekly payment of £144, plus inflation rises between now and the time the new rate is implemented. The current full state pension is £107.45 a week without any extra pension credits.
Ministers said the White Paper proposals will "hugely benefit" women, low earners and the self-employed, who under existing rules find it almost impossible to earn a full state pension. Replacing the current system of add-ons and means-testing with a single tier will provide certainty to people about what they will get from the state, MPs have said.
The state pension age is rising to 66 for both men and women by 2020, with further plans for this to increase to 67 between 2026 and 2028. The new single-tier pension is expected to only be paid to those who reach state pension age from April 2017.
The government is also expected to announce that anyone who has not paid national insurance for at least 10 years will not qualify for the enhanced state pension.
Paul Johnson, director of the Institute For Fiscal Studies, said, "The result for most public sector workers would be therefore somewhat higher NI contributions, but also rather higher pensions and payments.
"At the moment, if you are on a public sector occupational scheme, you are effectively giving up your right to the state second pension. Under this new system, you would get the full flat-rate pension, plus you would continue to get your public sector occupational scheme.”
"The self-employed will be the one group who are unequivocally better off in the long run, because at the moment they are not earning any state second pension, and in the long run they will get the whole £144 or so," he added.
Chris Curry, from the charity the Pensions Policy Institute, said the people helped were those who had traditionally done very badly under the current system.
"So people who don't make enough contributions throughout their working life to, in particular, the state second pension, which includes people with intermittent work patterns, periods of low earnings and the self-employed," he said.
"So a lot of women will do better from this particular policy, as will people who are spending long periods of their career in self-employment."
However the proposals have also faced criticism for demanding highers contributions from existing workers, and for not including existing pensioners.
The GMB union said there could be "very serious consequences" which could affect an agreement on public sector pensions, by asking people to pay more.
The National Pensioners Convention criticised the plans, saying that current rules allow men and women to pay 30 years’ worth of National Insurance contributions in order to get a full basic and second state pension of around £150 a week, but the new plans call for them to pay for 35 years and get £144 a week.
Dot Gibson, NPC general secretary, said, “The White Paper offers nothing to existing pensioners and leaves many of them to struggle on lower pensions and a complicated means-testing system. The worst affected will be around five million older women who don’t have a pension anywhere near £144 a week and would clearly benefit if they were included in the new arrangements, but look like they are going to miss out. This will only add insult to injury to millions who have already made a contribution to our society but are still living in poverty.”
“The outlook for future generations of pensioners is even worse. They are being asked to pay an extra five years’ worth of national insurance contributions, work longer before they can retire and end up with less than they can get today. At the moment you only need to contribute for 30 years in order to get a full state pension – and if you do, you can get £150 a week when you retire at 65. 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.”
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