A flat-rate state pension from 2017, worth £144 for new pensioners, is announced by the government, amid warnings of a “con trick” and fears of a demand for higher contributions.
The current state pension is worth £107.45 a week, but it can be up to £142.70 with additional pension credit. The government’s plans would add £9 a week for 750,000 women, with increases expected to come into play from 2017.
Ministers said the proposal 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, ministers said, and will provide a better platform for them to save for their retirement.
However the proposals were criticised by some, who said they demand higher contributions for final salary pensions schemes in both the public and private sector. 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 (NPC) also described Monday’s white paper as little more than a “con trick” for future generations, by offering them less than they get now, asking them to pay more and work longer before they can get it back.
The state pension age is already set to rise to 66 for men and women by 2020, and to 67 by 2026 or 2028.
Around 6 million workers will face higher national insurance payments in future as the practice of “contracting out” the state second pension to employers is ended. Those affected are expected to include more than one million private sector staff enrolled in final salary schemes, and an estimated five million public sector workers.
Secretary of State for Work and Pensions, Iain Duncan Smith, 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.”
Pensions Minister Steve Webb branded the current system as “too complicated” and leaves millions of people needing means-tested top-ups.
“Our simple, single tier pension will provide a decent, solid foundation for new pensioners in an otherwise less certain world, ensuring it pays to save,” he said.
Brian Strutton, national officer of the GMB union, said a new flat rate pension should be fairer than the present arrangements, but warned the required increases in national insurance contributions are too much.
“For employers, that is 3.4 per cent of the NI ranking earnings and for the six million employees affected it will be an extra 1.4 per cent,” he said.
“Most DB (defined benefit) scheme employers and members will find this unaffordable so will need to renegotiate their schemes.”