Winners and Losers of New Flat Rate State Pension

Posted on 15th January, 2013

Plans for a "simple" flat-rate state pension have been unveiled, but many of those entering the workforce now will be worse off than under current rules.

The government's White Paper shows that there are short-term gainers but longer-term losers from the policy. Instead of a basic pension of £107 a week plus various means-tested top-ups, recipients will get £144 in today's money from 2017 at the earliest.The government said this was fairer for the self-employed and many mothers.

Figures in the White Paper, published on Monday afternoon, suggested that at least half of all people reaching state pension age before 2050 were likely to have a better outcome under the new system than they would if the current system were to continue. Of these, the majority would be better off by at least £2 per week.

However, by 2060, more than half would be worse off than if the current system continued, because they could not build up a state second pension. After April 2017, people will also have to work longer, making 35 years' worth of National Insurance (NI) contributions, rather than the current 30, to qualify for the full pension.

Pension facts

Currently 11.5 million people claim the state pension. 2.8 million women receive a state pension of less than £80 a week. Only 474,000 men do so 3.2 million individuals receive pension credit to supplement their retirement income. Anyone who has not paid NI for at least seven, or possibly even 10, years will not qualify for the new state pension at all.

The current full state pension is £107.45 a week, but can be topped up to £142.70 with the means-tested pension credit, and a state second pension which is based on National Insurance contributions.

Anyone who qualifies for the state pension before April 2017 will continue to receive their entitlement under the current system. For new pensioners from April 2017, the second state pension will be abolished.


Winners and losers


Winners include:

The self-employed, who currently do not build up a state second pension

Those who have spent time out of the workforce, such as mothers and carers of those with disabilities, will benefit in the short-term


Losers include:

Many of those entering the workforce now are likely to receive less than they would have done had the current system remained in place

Those who have fewer than seven, or possibly even 10, years of National Insurance contributions, who will get no state pension under the new rules

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