Chancellor George Osborne has announced that the government will introduce a single-tier state pension of around £140 per week.
The new system, which was originally mooted by pensions minister Steve Webb last year, will be introduced early in the next Parliament. It will be set above the mean-tested pensions credit and, as set out in the green paper published by the Department for Work and Pensions (DWP), the single-tier pension will cost no more than the current state pension system in every year.
Raj Mody, partner and head of the pensions group at PricewaterhouseCoopers, said: “True simplification has to be good news for savers and pensioners. Having a simple and clearer idea of what base level of state pension can be expected will be a good starting point for building their further savings on top of that.
“However, expectations need to be realistic. With the links between state pension age and life expectancy we can see the state pension age easily being 70 by 2050. A newborn today may not expect to see their state pension until past age 75.”
The government will provide more detail on the single-tier pension in a white paper to be published in spring 2012, with final decisions on the detailed implementation of the policy being taken at the next spending review.
Read more on the Budget 2012
Tim Jones, Chief Executive of NEST comments:
‘The introduction of the flat rate state pension makes pensions simpler and more straight forward. NEST therefore welcomes the Minister’s decision, which makes the benefits of saving clearer.’
I received a pension forecast just last week (I retire November 2016) and it stated that at todays’s rate i could expect to receive £167 a week as i had contributed to the secondary state pension! In light of the single tier pension of £140 does this mean I lose £27 a week? I have worked all my life and paid into the system – it seems to me that the chancellor is taking from one to give to another in order to have this single tier pension!!!
This is unarguably going to be a simpler system than we have had in the past, and much easier for most people to understand. People need to take responsibility for their own retirement provision if they can, but they need a strong foundation to build on.
We welcome the fact that this reform will help people understand what they can expect from the state and give them more confidence that their own savings will not be means-tested away.
Unfortunately, some of the simplicity promised is likely to be illusory, while improvements for some have to be paid for by others and two groups in particular, employers and employees. The reform will kick away the final support the government has been giving to those employers still providing defined benefit pension schemes.
This is because, since contracting-out of the additional state pension was introduced in 1978, employers and their employees have paid lower rates of national insurance (NI) in return for good-quality workplace pension schemes.
Sweeping this away will raise the NI bills of those employers, which will make them think twice about keeping their schemes open. Another massive disruption to defined benefit pension schemes is on the cards. As a result, members’ benefit security will be reduced and there will be increasing reliance on personal saving and defined contribution arrangements.
Like anonymous I have paid SERPS & Second state pension or whatever it is called for 43 years and had a pension forecast of £178 so Mr flaming George (I’ll help my rich buddies) Osborn wants to steal £38 of MY money to give to someone who I’ve been supporting all my life on the dole does he? Well he’s not on. I’ll sue the sod if I can…