Flat rate pension at heart of Bill

Updated: 
A new flat rate pension designed to encourage saving and make the system fairer is at the heart of sweeping Government reforms of state retirement funds unveiled in the Queen's Speech.

The Pensions Bill promises to create a simpler state pension by scrapping the two-tier system of basic pension and earnings-related additional pension from 2016.
A new flat rate pension designed to encourage saving and make the system fairer is at the heart of sweeping Government reforms of state retirement funds unveiled in the Queen's Speech.

The Pensions Bill promises to create a simpler state pension by scrapping the two-tier system of basic pension and earnings-related additional pension from 2016.

It will mean a single flat rate of around £7,000 a year - or £144 a week in today's money - for everyone in Britain who spends at least 35 years working or caring for children or the elderly.

The Bill will also bring forward a change in the state pension age to 67 to take place between 2026 and 2028, with regular reviews of the age in light of rising life expectancy.

Changes will include a clampdown on overseas pensioners claiming payments based on their spouse's history by putting an end to the married person's pension. Current rules have allowed spouses of UK pensioners to claim up to £66 a week even if they have never paid any national insurance contributions, or even set foot in Britain.

It is a loophole that allows around 220,000 pensioners living abroad to claim on their spouse's record, costing taxpayers £410 million a year. The new pension system will instead be based on an individual's record only from 2016, although it will not impact current pensions.

Ending the married person's allowance is one of the more controversial changes, given that it will also mean UK resident spouses cannot claim on each other's records.

Steve Webb, pensions minister, defended the proposed law change earlier this week, saying it will prevent "unacceptable" numbers of those living outside of the UK from being subsidised by British taxpayers.

Higher earners are also expected to lose out under the single-tier pension as they are set to receive a lower payout.

The flat rate pension is the central plank of the coalition's pension reforms, alongside the new auto-enrolment scheme that automatically saves a sum from employee wages into a retirement fund, unless workers opt out.

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