14 January 2013 – Women, low earners and self-employed to benefit under new "Single Tier" pension

Details of the Coalition Government’s plans to simplify the state pension system with the creation of the "Single Tier" pension, have been published in a White Paper today as part of the Mid-Term Review.

The reform will create a simple flat rate pension set above the means test (currently £142.70) and based on 35 years of National Insurance contributions. It will particularly benefit women, low earners and the self employed, who under existing rules find it difficult to earn a full state pension.

By replacing today’s complex system of add-ons and means-testing the Single Tier will provide certainty to people about what they will get from the state and provide a better platform for them to save for their retirement.

Secretary of State for Work and Pensions, Iain Duncan Smith said:

"This reform is good news for women who for too long have been effectively punished by the current system. The Single Tier will mean that more women can get a full state pension in their own right, and stop this shameful situation where they are let down by the system when it comes to retirement because they have taken time out to care for their family."

Minister for Pensions Steve Webb said:

"The current state pension system is too complicated and leaves millions of people needing means-tested top-ups. We can do better. Our simple, single tier pension will provide a decent, solid foundation for new pensioners in an otherwise less certain world, ensuring it pays to save."

Joanne Segars, Chief Executive, National Association of Pension Funds:

"Today’s announcement for a simpler, more generous state pension is a much-needed shake-up that will ultimately help millions of pensioners and savers. For the first time in a generation, people will know that it pays to save, and that whatever they put aside won’t be eroded by means-testing when they retire."

Dr Ros Altmann, Pensions expert:

"Such radical state pension reform is long overdue and it will be a huge step forward to have a single, flat-rate state pension, without mass means-testing in future. This will make it safer to save, which is essential as auto-enrolment extends across the workforce."

Tom McPhail, Head of Pensions Research, Hargreaves Lansdown:

"For anyone who doubts the importance of joining a pension, the message is now very simple: if you want to more than £7,500 a year to live on in retirement, you need to start saving. With millions of employees set to join their company pension in the months ahead, today’s announcement delivers the foundation for a solution to the pensions crisis."

Otto Thoresen, Director General, ABI, comments:

"A simple approach to state pension provision is a key element in ensuring the success of pension reform. With greater clarity about what the State will provide, and automatic enrolment to encourage people to make additional provision for their retirement through the workplace there is a real chance to create a savings culture in the UK. We welcome today’s proposals to take forward this legislation."

Key facts

• There are currently 11.5 million people claiming the state pension
• 2.8 million women receive a state pension of under £80 a week compared to only 474,000 men.
• Some 3.2 million individuals (2.6 million households) - receive Pension Credit to supplement their retirement income.

Key benefits of the reforms:

• 750,000 women who reach pension age in the decade after Single Tier is introduced will on average get an extra £9 a week
• Under the present system, 4.2 million self-employed people are prevented from getting a full state pension. The Single Tier will now properly recognise their NI contributions.
• By the 2040s, over 80 per cent of people reaching State Pension age will receive the full weekly amount of single-tier pension.
• A significant reduction in means testing. The proportion of people reaching State Pension age after the introduction of single tier who qualify for Pension Credit will be halved compared to the current system, and remain under 10 per cent up to 2060.

Key features of the Single Tier pension:

• A single, flat rate state pension payment set above the basic level of the means test, which is currently £142.70 – compared with a current basic state pension of £107 per week and highly variable and unpredictable levels of additional state pension. The White Paper assumes £144 a week start rate, which is up-rated annually by the ‘triple lock’
• An end to different Basic and Additional State Pensions, and contracting out of defined benefit pension schemes. Savings credit abolished.
• 35 qualifying years to receive the full amount with over 80% of new pensioners achieving this by the 2040s
• A minimum number of qualifying years (up to 10 years) to get any single tier
• Self employed people brought fully into the state pension for the first time
• All state pension rights accrued under the old system will be recognised, so nobody will lose out on any pension they have earned.
• These changes will provide people with a platform to save for their retirement and follow last October’s introduction of automatic enrolment

Notes to Editors:

• A full copy of the White Paper can be downloaded at: www.dwp.gov.uk/single-tier-pension/

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