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Draft Pensions Bill on new state pension and increase to state pension age

The draft Pensions Bill was published on 18 January 2013.  The Work and Pensions Select Committee will scrutinise the Bill before it is put before Parliament.  The Bill is likely to change as it makes its way into law.

The new state pension

The Bill replaces the current state pension, which has two parts (the basic state pension and the additional state pension) with a new single-tier state pension. This will be for everybody who reaches their state pension age after the new state pension is introduced. Under the current system, the amount of state pension paid to an individual is based on complicated calculations to do with the amount of national insurance contributions they have paid or been credited with. The new pension will be simpler.  It will be 'single-tier' - no longer made up of lots of different parts such as the basic state pension and additional state pension. It will be flat rate - the same for everybody depending based on how much national insurance they have paid.   The current state pension is partly linked to earnings.

Individuals will need to pay or be credited with 35 qualifying years of national insurance contributions to receive the full amount.  This is likely to be around £144 a week in today's money. Where an individual has fewer than 35 years qualifying years, their state pension will be 1/35th of the full rate for each qualifying year of national insurance they have paid. So for example, somebody who has paid for 20 qualifying years will get 20/35ths of the full rate.

Individuals will need to pay or be credited with national insurance contributions for between seven and ten years to receive any state pension.  The exact number of years has not yet been determined.

Self-employed people will also build up entitlement to the new state pension once it is introduced.  At the moment, self-employed people can only build up basic state pension and cannot get the additional  second pension.   

The Bill contains special provisions for people who have made national insurance contributions before it comes into force, to ensure that all their national insurance contributions are taken into account under the new system. Anybody who has paid enough national insurance to get more under the current system will keep it.

Special provisions will also apply to:

  • people who have been treated as if they paid, or credited with national insurance contributions in respect of tax years before the introduction of the new state pension;
  • people inheriting entitlement from a late husband, wife or civil partner who had made national insurance contributions in respect of tax years before the introduction of the new state pension; and
  • women who, before 1977, elected to pay a reduced rate of national insurance contributions.

Pension credit

The draft Bill abolishes the savings credit element of state pension credit for anyone who reaches their state pension age on or after the introduction of the new scheme.  Anybody already receiving savings credit will keep it. The guaranteed element of state pension credit will remain as a last resort for those who need it.

Postponing state pension

There will be new rules for postponing or suspending state pension.  Deferral is allowed, in return for a higher weekly state pension (possibly 1% for every ten weeks, but the rate to be confirmed) but it will no longer be possible to take the deferred amount as a lump-sum payment

The Impact Assessment published with the Bill shows that over half of those over-25 will receive more state pension income than under the current system, as will three-quarters of all new retirees in the 2020s. 

Self-employed people are likely to be better off because they can't currently build up any additional state pension. Women and people with caring responsibilities may also be better off.


The draft Bill abolishes contracting-out under salary-related occupational pension schemes.  Individuals who are members of private and public sector contracted-out schemes currently pay a lower rate of national insurance.  This is because they are not building up additional state pension entitlement whilst they are contracted-out.  Instead, they build up a broadly comparable additional pension in their private scheme. When contracting-out ends, they will pay more national insurance as there will no longer be a lower rate for people who were contracted-out.  This is not likely to happen until 2017.

State pension age

The Bill brings forward by eight years the timetable for increasing state pension age from 66 to 67, to begin in 2026 and end in 2028. The state pension age was due to increase to 67 between 2034 and 2036.  There will be regular, independently-led reviews of state pension age so that it will continue to rise in line with increases in life expectancy.

Bereavement benefits

It introduces a new Bereavement Support Payment, to replace the existing suite of bereavement benefits.  The new benefit will only apply to people whose husband, wife or civil partner dies on or after the date it is introduced.  It will provide support for the period immediately following bereavement. It will consist of a larger tax-free lump sum, supplemented with monthly payments for one year; only people who have not yet reached pensionable age will qualify, however.  Anybody already receiving benefits following the death of their husband, wife or civil partner will not be affected.

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