Flat Rate State Pension To Simplify System

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Introducing a single flat-rate state pension will leave up to half of pensioners worse off by 2060, according to the Government's own figures.

Ministers say the coalition's plans to simplify the system will particularly help women, low earners and the self-employed.

It will see all new pensioners paid one rate above the means testing level, equal to around £144 in today's money, from April (Paris: FR0004037125 - news) 2017.

Around 750,000 women will receive an average of £9-a-week extra, while millions of self-employed people will be brought fully into the state pension for the first time.

But the Government's own White Paper reveals more than half of people reaching state pension age after 2060 will be worse off.

When it is first introduced, around one in five pensioners will be better off, less than one in 10 worse off and others unaffected, according to the document.

But over time, the proportion losing out will rise rapidly and eventually many will be down by more than £2 each week.

The Institute for Fiscal Studies (IFS (SES: E1:I49.SI - news) ) said the plans implied a cut in pensions entitlements for most people in the long run.

Pensions Minister Steve Webb said high earners would be among those affected but insisted there were "far more winners".

"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.

He also said there would be no impact on public sector pension schemes despite unions claiming a hard-fought deal on the Local Government Scheme could be hit.

The Treasury will receive billions of pounds in extra National Insurance (NI) payments because people will have to work for 35 years rather than 30 to qualify for the full amount.

However, Downing Street rejected suggestions that the change was designed to save money or raise extra cash for the Treasury.

And David Cameron said: "We're going to have later retirement ages as we're all living longer. I think it's fair to ask people to work a bit longer as we are all living longer."

The IFS said the shake-up looked like a "welcome simplification" but warned there would be a "fairly complex pattern winners and losers in the short-term".

"The main effect in the long run will be to reduce pensions for the vast majority of people, while increasing rights for some particular groups, most notably the self-employed," a spokesman said.

"This will help a lot of women and a lot of lower paid workers who otherwise wouldn't get a decent state pension."

TUC General Secretary Frances O'Grady said: "Today's pensioners will be angry that they miss out on this reform and face continued threats to remove the winter fuel allowance and help with travel.

"The increases in the state pension age redistribute from poorer people with shorter life expectancies to the better-off who live longer."

But Joanne Segars, Chief Executive of the National Association of Pension Funds, said: "Today's announcement for a simpler, more generous state pension is a much-needed shake-up that will ultimately help millions of pensioners and savers.

"For the first time in a generation, people will know that it pays to save, and that whatever they put aside won't be eroded by means-testing when they retire."

Labour said 84,000 people in Wales were receiving a pension higher than the level proposed by the Government.

People entitled to such pensions stand to lose at least £10-a-week, said shadow Welsh secretary Owen Smith, adding:

"We will need look very carefully at these proposals as there is a risk that thousands of hard-working people across Wales who have paid contributions throughout their life will lose out," he said.

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