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Government lays out two options for state pension reform


The Government has confirmed plans to radically reform the basic state pension through the introduction of a universal, flat-rate payment of £140 for future pensioners.

A much anticipated green paper, titled ’A state pension for the 21st century’, proposes two options for reform.

Option 1 would be an acceleration of existing reforms so that the second state pension moves to a flat-rate by 2020. Under this option contracting out would continue for members of defined benefit schemes.

Option 2, the “more radical” reform option, proposes moving to a single-tier, flat-rate state pension of around £140 a week at today’s prices. This would replace the current system, which combines the basic state pension with payments from Serps and the state second pension. It would also bring an end to means-testing for pensions.

There would be a minimum of seven years of contributions or credits to qualify for the single-tier pension and to qualify for the full amount individuals would have to build up 30 years of NI contributions or credits, as is the case already.

Periods spent contracted out will be taken into account so individuals that have contracted out will receive less than the £140 directly from the state pension. The DWP estimates around half of pensioners would have such an offset by 2050.

Under both options the system will remain contributory and all contributions made under the current regime will be honoured. The Department for Work and Pensions says the reform will not involve an increase in spending on state pensions.

Pensions minister Steve Webb says: “The current state pension is dogged by complexity and confusion, it makes it very difficult to save for retirement and leaves millions of people relying on means tested support. I am proud to bring forward proposals that will end the unfairness inherent in the system and secure a fair, decent and simple state pension fit for the 21st century. These reforms will transform pension saving in this country.”

Work and Pensions Secretary Iain Duncan Smith says: “Over the years small changes to the state pension system have turned what started as a relatively simple contributory system into a complex mess, leaving people utterly confused as to what the state pension means for them. We have to send out a clear message across both the welfare and pension system: you will be better off in work than on benefits and you will be better off in retirement if you save.”

The DWP also confirms plans to link future rises in the state pension age to longevity. This could be done through the introduction of a formula or a regular review of changes in life expectancy.


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There are 17 comments at the moment, we would love to hear your opinion too.

  1. As a male contributor to the State Pension(49 contributions which is the maximum) I am currently receiving £97.00 per week and by 2015 with increases it will never get anyway near the proposed £140.00. I also spent 24 years in the armed forces and because the government contracted us out of serps I do not receive any serps pension for those 24 years. Women with a small contribution record (30 years) will get more pension than I. What does IDS and his colleagues think? It is most unfair and should not happen until someone examines the figures properly. This job should be given to a non civil servant who appreciates the value of fairness

  2. Martyn Collins 5th April 2011 at 5:54 am

    Sounds good but what about the people who contracted out like me, will we still get the £140 or will it be reduced to take this in to account? Obviously I hope its the £140 but it would seem a little unfair on the people who did not contract out!

  3. So,my neighbour who is 4 years younger than me will recieve a standardised pension of £140 at todays values, and as I retire at 65 next year will be recieving £43 less than him at that time? Does that not make me a second class pensioner. So he can take a short holiday each year and I cannot. He will be able to run a car and I will struggle. He can have a roast for Sunday and it will be baked beans for me. For two pensioners merely separated by a few years this is a disgrace.

  4. Woman who has worked for past 21 years with anothe 5th April 2011 at 9:16 am

    Reading between the lines it sounds like you will still receive your contracted out element from which ever provider you contracted out with but the £140 state pension will be reduced – how much by is the question and is this element means tested based on NI contributions – who knows?

  5. John Hutton-Attenborough 5th April 2011 at 9:27 am

    “It would also bring an end to means-testing for pensions.”

    For how long!!!!

  6. Gareth E K Smith 5th April 2011 at 9:43 am

    I can see it now the minefield for complaints:-

    Contract out, you can opt to have it from 55 and take quarter tax free cash – will this option go?, do we advise our mid 50’s clients to unlock now take the TFC take a reduced RPI linked pension with 100% spouse due to the fact that at state pension age they will get flat rate pension and have had benefit of contracted out money for all those years.

    Check your suitability letters for the “state benefits are subject to legislation change” for if not in get your tin hat on for all those who siad you would be better off contracting back in.

  7. Incompetent Regulators Awards Team 5th April 2011 at 10:27 am

    Keep it simple stupid as they say. 1 pension is enough.

    The biggest problem facing UK plc is unfunded Public Sector Pensions baing paid out as promised a million years ago when life expectancy was less than today. Solution is:

    Take away promised benefits from these unfunded schemes and tax them more in payment to get revenue back. Private sector pensions have already been raided so we need to fund UK plc together.

    Going forward, everyone should make their own provisions without any promises = level playing field and fairer system.

  8. As someone with the state pension and Serps and Graduated Retirement Benefit, at the moment I get £125 per week. In 4 years time, I will still get quite a bit less than the proposed £140.00 per week. Cant’ see how that’s fair, as I needed 39 qualifying years to get it.

  9. As someone who is due to retire at the end of January 2015 I think it highly likely that I will be paid a pension under the current rules and yet those retiring a few months later stand to benefit by half as much again. So much for paying full NI for the last 45yrs. How can that be just?

  10. One of the main purposes of this system was that a flat rate would save administration costs. The proposed “two tier” system is no only unfair but will not save the government money as it will still have to administer payments under both schemes for the next thirty years or so! This whole process will be very divisive and unfair with, for example, an already retired man not even getting £100 pw if he did not pay 44 years NI contributions, whereas in future a man will get £140 for only 30 years payments.

  11. No sooner than the Govt promotes “we are ALL in this together” it then divides pensioners into “them that shall receive” and “them that won’t”. The changes have to have transitional arrangements that will not disadvatage 10 million of us who have retired. That is a lot of votes for any party to lose.

  12. I retire in 2015 have paid into private pension so wont get any uplift so if i am £50 less than neighbour one year younger and live to age 90 i will lose £65,000 thank you BIG FAIR SOCIETY
    masive vote loser for the tories well done

  13. Reading the comments posted here and elsewhere maybe the best thing to do is not to make any changes at all!!

    If only the elderly resisted change in 1908 by saying “its not fair that future pensioners will get a state pension when we didn’t” or later on before 1948 “in my time it was means tested its not fair that it won’t be in the future”

    Then we wouldn’t have a state pension at all and everyone could share the misery!!

  14. There are always going to be people who lose out with any changes made. If they make this change right now there will be millions who have a right to moan about getting less than a neighbour will in a few years.

    It HAS to happen, otherwise it will stay this way getting this amount forever. If you are in the younger generation (like myself) who this wont affect then its plain and simple but I completely sympathise as if I was about to retire and being told I’m getting £40 less than someone who retires in a few years then I would also be annoyed, but what is the alternative? Some will always lose out for a positive change to the future.

    As MrManc states if we didnt force this through now then in 100 years everyone will still get what they get now.

  15. I like many others will be retiring shortly on the basic rate pension due to me having been thrifty in earlier years to save for retirement, I will not be eligible to claim pension credit. This move is very much against people who have saved all their working life and to be honest, I feel like going out and blowing it all in order for me to claim whatever I can. I think a human rights claim is brewing here and I hope everyone who feels the same does something about it.

  16. If change is needed then the only fair way forward is to award EVERYONE the same new amount. Why does it only have to be for newly retired after 2015/16.

  17. Why not just say that this new amount is for everyone receiving a state pension,on the inception date, except for those who have an income of say £50000. sort of means testing for the rich ! Seems to me that if our hard-earned pension is nowadays being referred to as a ‘benefit’ then why should it be paid atall to richer individuals to whom this tiny amount of money is neither here nor there.
    If it truly is a pension earned by all who receive it then it MUST be universal.

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