Under reforms to the state pension system, the basic pension will be set at £144 plus inflation a week and the complicated system of means-tested “top-ups” will be scrapped. The new system will start in April 2017.
At the moment, the full state pension is £107.45 a week but can be topped up to £142.70 with pension credit but critics have long accused the system of being too complicated.
A universal flat-rate payment will be the biggest change to the system in decades and will allow more than a million pensioners, who currently don’t claim the pension credit they are entitled to, to receive the full amount.
Self-employed people and women are also likely to benefit, as women who take time out of the workplace to care for children or elderly relations will qualify automatically for the pension. It is estimated that more than 750,000 women in their fifties will receive an extra £468 a year when they retire.
However, to help fund the extra costs of the scheme, around six million workers will face higher national insurance payments in future as the practice of “contracting out” the state second pension to employers is ended. Those affected are expected to include more than a million private sector staff enrolled in final salary schemes, and an estimated five million public sector workers.
Under established plans, the state pension age is rising to 66 for both men and women by 2020, with further plans for this to increase to 67 between 2026 and 2028 and today’s teenagers can expect to work into their seventies.
The Government is also expected to announce that anyone who has not paid National Insurance for at least 10 years will not qualify for a state pension, while those who have paid for less than 35 years will see their pension reduced in a change from the 30-year threshold introduced a few years ago.