Chancellor George Osborne has announced that the government will look to introduce a single-tier state pension worth around £140 a week.
The aims behind the proposals, outlined in the Budget report, are to simply the state pension and make it clearer to employees what they will receive from the state.
In addition, moving to a single-tier pension will bring an end to contracting out for defined benefit (DB) pension schemes.
The Budget report stated: “The government will simplify the state pension system so that it is fair and supports personal responsibility, and so that costs are sustainable, both today and for future generations. The state pension system is complex. It is not clear to working-age individuals what they might receive from the state, in particular from the state second pension, making it difficult to plan retirement saving.”
The Department of Work and Pensions (DWP) will shortly publish a green paper to consult on options for reform. The government has also said it will investigate the potential impact of such reforms on employees and schemes in both the private and public sectors.
Given the continuing increases in life expectancy, the government will also bring forward proposals to manage future changes in the state pension age more automatically, including the option of a regular independent review of longevity changes.
Chris Noon, Partner, at Hymans Robertson, said: “This de-politicises decision making around decisions to increase the state pension age. However, it is a highly emotive subject so the government should nonetheless expect potential political impact when people realise what it really means.”
Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), said: “This is a turning point for pensions in the UK. Over half a million new pensioners a year will get a simpler and more generous state pension, and reliance on means-tested benefits will be slashed.
“For too long we have put up with one of the most complicated and meanest state pensions in Europe.
“This reform provides a clearer foundation for saving for old age. For the first time in a generation, people will know that it pays to save.”
For more articles on the budget’s impact on benefits