On 14 January 2013 the Government laid out proposals for a radical shake-up of State Pensions in 2017, making planning for retirement more important than ever before. With the introduction of a new ‘flat-rate’ pension of £144 a week for those retiring in or after 2017, the Government claims that: “The implementation of the single-tier pension will significantly simplify the pension system, helping people to understand what they will get from the state when they retire.” 

Low Earners Benefit

Generally those who will benefit most from the new system will be those with low overall earnings, or those who have taken time away from the workplace due to factors such as parenthood or disability. Self-employed people may also stand to benefit. The changes will only affect people who reach State Pension Age in 2017 and beyond – the system for those reaching State Pension age before 2017 will remain unaffected.

However, there will be some significant changes to reflect the work patterns of modern society, such as the presence of more women in the workplace and the trend for people to work for longer as life expectancy increases. The new system will run on the basis of individual entitlement, so there will be no special rules for people who are married, bereaved or divorced.

Incentive to Save

Government calculations indicate that over 80% of people will receive the full weekly amount of single-tier pension by the 2030s. Ros Altmann, Director-General of the Saga Group, has responded favourably to the news, saying: “Overall, this system will eventually be much clearer for future generations.” She adds: “This gives clear incentives for people to save if they can without the fear that so many will be penalised by a Pension Credit means test.”

However, not all reactions to the proposals have been positive. UNISON has pointed out that, while £144 per week represents an improvement on the current £107 per week, it is still below the poverty line.

Simplicity

Steve Webb, minister for pensions, argues that the relative simplicity of the new system reflects a return to the original pension system envisioned at the inception of the Welfare State, saying: “As a Government we will make it easier and simpler for people to plan…there will be a firm foundation for retirement for today’s working population.”

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