Plans for a radical shake-up of state pensions are due to be announced by the Government amid warnings that it will be little more than a "con trick" and could affect a hard-fought deal on public sector pensions.
The coalition's proposals include a single flat rate state pension, equivalent to around £144 in today's money, to be introduced for new pensioners from 2017 in a bid to simplify the system.%VIRTUAL-SkimlinksPromo%
Ministers said 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 and will "hugely benefit" women, low earners and the self employed, who under existing rules find it almost impossible to earn a full state pension.
Around six million workers will face higher national insurance payments in future as the practice of "contracting out" the state second pension to employers is ended. Those affected are expected to include more than a million private sector staff enrolled in final salary schemes, and an estimated five million public sector workers.
The GMB union said there could be "very serious consequences" which could affect an agreement on public sector pensions, while the National Pensioners Convention described the White Paper as little more than a "con trick" for future generations, by offering them less than they get now, asking them to pay more and work longer before they can get it back.
But ministers will argue that 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."
Pensions Minister 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."
Brian Strutton, national officer of the GMB union, said a new flat rate pension should be fairer than the present arrangements, but warned of a "very serious consequence" from the coalition's plans. He said: "That is the increase in National Insurance contributions that employers and employees in defined benefit pension schemes will have to pay. For employers that is 3.4% of the NI ranking earnings and for the six million employees affected it will be an extra 1.4%. Most DB scheme employers and members will find this unaffordable so will need to renegotiate their schemes.
"A good example is the Local Government Pension Scheme which has just been reformed by unions and government and would face an unaffordable extra NI bill of several hundred million pounds. Just as the Treasury legislation to reform public sector pensions is going through parliament, the Department for Work and Pensions is proposing to blow it all out of the water by completely rewriting the state and occupational pension landscape."
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