State pension flate-rate to increase

The Momentum UK Team 14 January 2013

Proposed changes to state pensions will see an increased flat-rate to be introduced in exchange for an extended period of National Insurance contributions by 2017, the government has announced.

Set to be introduced by 2017, the new higher flat-rate will see the state pension increase to £144 in today's prices. This will be the standard amount anyone receives as long as they have paid national insurance contributions for 35 years.

The aim is to simplify what is often considered an overly complicated system and the basic state pension of £107.45 along with the means-tested Pension Credit, or Minimum Income Guarantee options will be phased out as the new measures are introduced. This flat-rate is planned to rise in line with earnings, prices, or by 2.5%, whichever is higher.

The new flat rate will be received by those reaching state pension age from April 2017, those retiring before this date willl not be affected, although the exact time frame is still undecided.

Those who have not paid the full 35 years worth of contributions are likely to see a reduction in their pension income modeled on a sliding scale. The government is also expected to say that people with fewer than 10 years of NI contributions will not qualify for state pension

Staggered retirement ages according to gender will also be scrapped and state pension age for both sexes will be set at 66 years old by 2020, eventually rising to 67 by 2028.

Iain Duncan-Smith, the Secretary of State for Work and Pensions said:

"This reform is good news for women who for too long have been effectively punished by the current system. The single tier will mean that more women can get a full state pension in their own right, and stop this shameful situation where they are let down by the system when it comes to retirement because they have taken time out to care for their family."

However the proposed changes have already come under criticism by some who feel that despite the increases, pensioners are being forced to work longer, amounting to a ‘con trick’ from the government.

Dot Gibson, general secretary for the National Pensioners Convention said: "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."