State Pension: Government rethink on £140 per week flat rate State Pension?


One of the coalition government’s flagship policies could be under threat, if reports in today’s Financial Times are correct.

The Work & Pensions Secretary, Iain Duncan-Smith, has previously announced the introduction of the flat rate State Pension to replace the existing system, which was seen by many as overly complex. The policy was also included in George Osborne’s last budget.

However, the FT reports today that Prime Minister, David Cameron, is considering a rethink amid fears that the policy will leave many worse off, including people traditional Conservative voters.

The FT report, says that Mr Cameron has decided to review the policy, after finding our many would-be pensioners will lose out under the new system. There is also concern that the new flat rate State Pension will not apply to existing pensioners, who will continue under the old system, including having to apply for complicated tax credits to top up their income.

Losers from the flat rate State Pension

Whilst the flat rate State Pension will benefit many there are potentially two groups who will lose out.

The first being higher earners, who will not be able to benefit from the State Second Pension (S2P), formerly known as SERPS (State Earnings Related Pension Scheme), which toped up their Basic State Pension. Although existing entitlements in SERPS and S2P will remain untouched, any future accrual will be stopped.

The second group are those people already retired, who will not qualify for the flat rate State Pension and whose income will continue to be made up of a complicated mix of State Pension, SERPS, S2P and tax credits.

White Paper

It had been expected that the government would bring forward legislation to introduce the new flat rate State Pension; however it now looks as though they will simply consult on a range of options, seemingly nervous about being too prescriptive.

Commenting a DWP spokesperson said: He says: “We will bring forward the white paper as planned, which will set out our proposals. We have not watered down the plans to introduce a flat rate state pension and I do not see that changing. There is no set date for the paper but we will publish it by the end of the year.”