Details on the new universal pension rate have been revealed.
Pension provision will be revamped as the government replaces the current system with a ‘fairer’ flat-rate pension.
Plans to create a £140 flat-rate pension have been published in a new green paper.
The proposed system, outlined in “A state pension for the 21st century”, will come into effect for new pensioners from 2014 at the earliest, according to expert predictions – those who are already receiving a pension will not be affected.
Currently pensioners receive £97.65 a week, which can be topped up through means tested benefit to £132.60. This will be replaced by a flat-rate pension of £140 a week that will be applicable to all people who have accrued sufficient National Insurance contributions. Rising with inflation, the figure could increase to £155 by the time the changes are implemented.
Earlier, pensions minister Steve Webb said: “Tomorrow’s pensioners do face a very different world. They will, on average, be working for a lot longer, they will be retired for longer, they will not on the whole have final salary guaranteed pensions in the way that perhaps their parents did”.
He added: “We therefore need a simpler, clearer foundation because more of them will now be asked to save for their retirement”.
The paper also mentioned that the basic state pension will rise according to average earnings, the Consumer Prices Index or by 2.5% depending on which figure is greater.
To receive a full state pension workers will have to have at least 30 years of National Insurance contributions under their belt.
The changes mean that for a number of upcoming years a two-tier pensions system will remain in existence; one for older pensioners on the traditional system and one for new pensioners on the overhauled system.
Patrick Bloomfield, a pensions expert at Hymans Robertson, said: “The reason [the new system] is coming in is because of the failures in the current system of means-testing. It has not got money into the hands of the people who need it. It has also discouraged a generation of people from wanting to save for themselves, because they think if they save up their own pension they will just replace money the government would have given them anyway”.
