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Simpler, Fairer State Pension Announced

05 April 2011

The Pensions Minister, Steve Webb has announced reform of the state pension system. A new Green Paper 'A state pension for the 21st Century' sets out two different options for simplifying the state pension for future pensioners.  

The first option involves retaining the two components of the state pension - the basic state pension and the second state pension - but moving the second state pension onto a flat rate by 2020. A flat rate pension is one which is based on an individual's contribution record and not linked to their earnings. The second state pension is currently due to move on to this system from the 2030s. 

The second option would replace the two components with one flat rate pension of around £140 a week. This is more than the current guarantee element of the means tested Pension Credit.

If implemented, the new state pension would be payable to anybody reaching state pension age on or after the date the change becomes law. Anybody who had already reached state pension age before that date, whether or not they had actually claimed their pension, would not be affected.

The new state pension would continue to be based on an individual's National Insurance contribution record. The full pension would be payable after 30 qualifying years of National Insurance contributions. There would be a minimum level of 7 years of National Insurance contributions to qualify.  

The Government has made a commitment to honour any pension entitlement already built up under the state pension scheme, if it is more than the new state pension.    

The public consultation ends on 24 June. A White Paper would be issued later this year if the Government decides to proceed with any reforms.

The Green Paper also sets out two ways for linking future rises in the state pension age to increases in life expectancy. The first is to use a formula to automatically link increases in life expectancy to increases in state pension age. The second is to introduce a system of regular reviews to consider the latest life expectancy projections.   

To view the Green Paper click here

We will publish more information once it becomes known.

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