What are the key changes?
From April 2017 there will be one single pension set at £144 a week in today’s money, rising to £155-£160 in four years’ time. This new ‘single-tier’ will replace the basic state pension, currently £107 per week, and its various “top-ups” or additional state pensions. However, it will be tougher to claim the full state pension under the new rules.
A minimum of 35 years of national insurance contributions, up from the current 30, will be needed. Anyone with less than 10 years’ contributions, such as immigrants, will not receive a pension. The savings credit element of the pension credit will be abolished along with “contracting out”, which will mean bigger tax bills for millions of private and public sector workers.
How is this better than the current pension system?
Simplicity and fairness. The current combination of basic and earnings-related additional pension systems is confusing; many people have no idea of what they will get from the state when they retire. The new single-tier pension will be set just above the current pension credit level, which means less means-testing to top up benefits. Low-earners and women who have taken time off work to care for family are the main beneficiaries.
Will everyone get the full state pension of £144?
No, £144 per week is the maximum. To receive the full weekly rate an individual will need a full 35 years of national insurance contributions or credits, with a proportionate pension paid to those with shorter contribution records. Those with less than 10 years receive nothing.
I am already receiving the state pension. Will I benefit?
No. Only those reaching state pension age after the reform is introduced in April 2017 will be entitled to the new single tier payment. There are currently 11.5m people claiming the state pension.
I was expecting to get more than £150 per week from the state pension. What will happen to the benefits I have built up?
The government says that state pension rights accrued under the old system will be recognised, so nobody will lose out on any pension they have earned.
I am due to reach state pension age before April 2017. Can I delay until after 2017?
No. Anyone reaching the state pension age before April 6 2017 will automatically receive a pension under the old rules.
I am “contracted out” of the state second pension. What will happen to me?
Those paying into a workplace pension instead of the state pot have paid less NICs than those who are not contracted out. But, after April 2017, many will be brought back into the state system and will pay full NICs. This will mean an effective tax rise of 1.4 per cent, or £250 a year, for workers earning £25,000, or £500 a year for those on £40,040. Some will benefit from special arrangements for moving back into state system.