Yesterday’s Queen’s Speech bought a flat rate State Pension a step closer whilst outlining measures to push back the age at which it will be paid.
Flat rate State Pension
A flat rate State Pension was trailed by the Chancellor George Osborne in his last budget, but it now appears that the government will bring forward legislation to make it a reality.
The basic State Pension is currently £107.45 per week, which can be topped up for some to £137.35 per week through the Pension Credit system; however the new flat rate State Pension is likely to start at £140 per week. With rises to take into account inflation it could reach £155 per week by the time of it’s likely introduction in 2015 or 2016.
Many experts consider the new flat rate State Pension to be the largest overhaul of the State Pension system since its introduction, although it will only be paid to new pensioners; existing pensioners will continue under the old system.
The new flat rate is designed to avoid the current situation where millions of pensioners do not claim the Pension Credit top ups to which they are entitled. Other beneficiaries are likely to be the self employed and women, many of who do not have full National Insurance contribution histories.
Rising State Pension age
The Queen’s Speech also included measures which will mean we all have to wait longer to receive our State Pension.
The State Pension age will already rise to 66 by 2020; however it will now rise to 67 between 2026 and 2028, affecting people currently aged 52 or younger.
It was also announced that the State Pension age will be set in line with life expectancy, which is likely to mean further increases in the age at which it is paid.
Whilst the move to a flat rate State Pension has been broadly welcomed, some retirement experts are concern that a two tier system will be created, with some pensioners on the old system getting less than those on the new flat rate State Pension. There is also concern that the flat rate will not be means tested and paid to all pensioners irrespective of how wealthy they are.
However, Joanne Segers of the National Association of Pension Funds (NAPF) was pleased by the announcement: “We are delighted by this confirmation of the government’s commitment to a long-awaited, landmark reform.”
She continued: “This is another big step towards a simpler, more generous state pension that no longer penalises people for saving. A new system will take millions out of means-tested benefits and will encourage people to take control of their own age by saving towards it.”
“We are all living longer, so it is inevitable that retirement ages move upwards to reflect that. The trade-off for working longer must be a better state pension come retirement.”