By Dr Ros Altmann
Radical Reforms to the State Pension – Here’s what the upcoming White Paper is all about
The Department forWork and Pensions will shortly release aWhite Paper outlining Government proposals for
a radical reform of UK state pensions. I have prepared this note to help explain what may be announced. Of
course it may not be exact, we need to see the actual details when they are published. Nevertheless, this
should help answer many of the burning questions likely to be on people’s minds and help people to better
understand the changes once they are announced.
In brief- What is expected from the White Paper:
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The White Paper will propose a new state pension system, eventually paying just one state pension of £140 a week (in 2010 prices) to anyone with a full 30 year National Insurance record
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The new pension will eventually replace Basic State Pension and all Additional State Pensions with one payment
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The £140 a week will be around £160 a week by the time the new scheme starts in 2016
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This will only apply to men born after April 1951 and women born after April 1953
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It will not be a citizen's pension - it will be based on contributions and age
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The new state pension will be just above the current Pension Credit means-test level, so those with private pensions, savings or earnings will not be penalised by the state pension
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Women, the self employed and pensioners on modest incomes with private savings will be winners. 60% of women would be entitled to less than the £140 a week so these women will all get higher state pensions under the new system. It will exclude existing pensioners.
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This new system will reduce - but not eliminate - pensioner means-testing. Future pensioners who do not have a full 30 year NI record, or those who may get Housing Benefit or Council Tax Benefit may still be means-tested.
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Anyone already entitled to over £140 a week will still receive the higher amounts, so there will be years of transition to the full new scheme when benefits from the past system will still be honoured
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The new system will be cost-neutral, it will just spend money differently. The cost of the higher state pension will be offset by savings from increasing the state pension age, abolishing the Savings Credit and money saved by paying zero pension to those with less than around 5 years of contributions.
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There will be no more contracting out of the state pension system, private schemes will be allowed to reduce their benefit structure in recognition of no longer having to replace the Additional State Pension.
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Public sector pension schemes may not do this as a result of the recent 25 year reform deal.
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Ending contracting out will mean workers and employers in contracted out pension schemes can no longer pay reduced national insurance rates.
To see a more in depth preview please click here
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