The Government has this week announced plans for employees to retire on a new ‘single tier’ pension scheme which is set above the basic means test and will be payable following 35 years of National Insurance Contributions (NICs).
Currently there are two state pensions in the British system; a basic State Pension (BSP) of £107.45 a week, based on 30 years of National Insurance contributions, and a State Second earnings-related Pension (S2P). A further means-tested ‘Pension Credit’ system tops up the income of poorer pensioners to ensure a minimum level of £142.70 a week in retirement.
The new White Paper  sets out proposals, due to come into force in 2017, guaranteeing a flat rate of £144 per week for all employees meeting their contribution. Additional credits will also be awarded to those who have been unable to pay NICs because of caring responsibilities. This should particularly benefit women who until now would have received reduced state pension entitlements if they spent time away from the labour market raising children.
Simplifying the pension system should benefit the six in ten people who do not feel they know enough about pensions to decide with confidence how to save for retirement . The 2012 ‘Attitudes to Pensions Survey’ published by the DWP found that although there has been increasing recognition by the public for the need to take personal responsibility for financial preparations for retirement, much remains to be done. For instance, knowledge of State Pension Age (SPA) has actually fallen amongst women, the result of relatively rapid changes in pension policy.
Interestingly, the survey did find an increased acceptance of the need for longer working lives. Over one in five (21 per cent) respondents expected to retire after their confirmed SPA and three per cent did not plan to retire at all.
Creating a simplified state pension system is a step in the right direction in terms of helping people understand their future pension entitlements and plan for their retirement. ILC-UK welcomes the proposed changes to the system which will enable people to have a clearer idea of the State Pension they can expect, and in turn make it easier for them to plan further savings on top of this.