Coffee House

Briefing: Simplifying the state pension

14 January 2013

6:11 PM

14 January 2013

6:11 PM

There certainly seems to be something to be said for keeping an effective minister in the same post. After two years and eight months in the job, Steve Webb is by far the longest-serving Pensions Minister since the post was created in 1998. And, as last week’s mid-term review showed, pensions is one area where the coalition has much to boast about: the ‘triple lock’, the Hutton review, raising the pension age, ending default retirement and compulsory annuitisation, and introducing automatic enrolment. And today, Webb has announced the government’s new ‘single tier’ state pension.

At the moment, the state pension system is fiendishly complex: there’s the basic state pension (currently £107.45 a week), the Guarantee Credit (which tops up income to £142.70 a week), the Savings Credit (up to £18.54 a week for those who have saved for retirement) and the state second pension (which is linked to earnings). But for those retiring from April 2017 onwards, these will all be replaced by one flat-rate state pension of around £144 a week (in today’s money – it’ll be uprated in line with earnings so will be more than £144 when it’s actually introduced in 2017). Everyone with 35 years of National Insurance contributions (or qualifying activities such as caring for children or a sick adult) will get the same amount.


Webb describes the plans as ‘a single, simple, decent pension’ — and the emphasis is very much on the ‘simple’. The government’s White Paper says:

‘A key objective of reform is to move to a simpler pension system that gives people clarity over what their state pension will be worth when they retire.’

And the Institute for Fiscal Studies has praise for this aspect of the reform at least: Gemma Tetlow described it as a ‘massive simplification’ and the IFS’s briefing says:

‘The proposed system looks straightforward and — in terms of its clarity — appears to be a clear improvement on the complex miscellany of rules which govern the current system.’

Reducing the means-testing in the system is a particularly welcome move, considering that around a third of those entitled to Pension Credit don’t get it, each losing out by an average of £33 a week.

Webb has also tried hard to present the changes as benefiting those – predominantly women – who have taken time off work to look after children. But the IFS points out that it is only those who did so before 2002 who benefit in this way and ‘in the long run, the reform will not increase pension accrual for part time workers and women who take time out to care for children’. It will, though, slightly close the gap between what the average female pensioner receives and what the average male one does: at the moment, the median woman only gets 75 per cent of the median man’s pension. Instead, the biggest winners are likely to be the self-employed, who do not benefit from the state second pension at the moment. The IFS calculates that most people will get at least slightly less under the new system than they would have under the current one — but as Webb has also been keen to emphasise, high earners are the biggest losers.

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Show comments
  • Teacher

    I retired with 32 years’ worth of NI contributions as the current rules say 30 years’ worth of NI contributions are sufficient for a full pension. Where do I stand? I am now 3 years short through misinformation and I am not on the table of those who can make back contributions. The announcement of the white paper came out yesterday and I cannot find out anywhere where I stand. The You/Gov site calculator is still telling me that I should be expecting a full pension. What a shambles!

  • hugh fowler

    If you think it is ‘simple’ you clearly did not read the White Paper as the ‘transitional arrangements’ are a nightmare. There is also a nasty little proposal to allow some private pension providers to adjust their schemes to reduce the rate at which private company pension scheme benefits accrue to compensate them for the end of the contracted out rebate for employers NIC. People who retire post 2017 who have accrued most of their pension at Contracted Out rates of NIC (currently 10.6% for employees ) will not be deemed to have full contributions record even if they have paid in for 40 plus years and their pension will be reduced by a ‘‘rebate derived amount’. As a consequence it is far from true that all pensioners will be receiving the same amount. In fact some people on contracted out schemes face paying more NIC, not getting the full single tier state pension and getting a smaller private pension -a true triple whammy. This is without getting onto the subject of people who paid SERPS and into the second state pension who appear about to be simply robbed of their money. The only ones seem to benefit are the self employed who look as though they are going to qualify in full for the new pension even though the rates of NIC they pay are lower than those paid by most employees including bizarrely those who are currently Contracted Out of NIC.

    Still no point getting worked up about it since this is the second ‘final, fundamental and historic’ reform of the state pension qualifications in less than a decade and I am sure that another one will be along shortly once the current bunch of jokers is voted out and we get the other bunch of charlatans and cheats in power.

  • hexton

    The transitional calculations look like splendid fun, if you like that sort of thing: , pp44-59

    • Teacher

      Thanks for this reference. I think I’ve found the transitional arrangement which relates to someone who has paid for fewer than the qualifying 35 years, information that I could not get from people at the government’s own pension office! It was written in peculiarly prolix and unclear English, however. I’m probably feeling somewhat reassured because I understood it incorrectly.

  • Tom Tom

    State Pension is going to be very simple in future….it is going to be non-existent.

    • HooksLaw

      to the tune of £145 a week?

      • Tom Tom

        £145/week with 1% uplift over 25 years looks splendid

  • Border Boy

    My wife and I qualify for the state pension at the end of November 2016. This means that it will cost us each £40 per week for the rest of our lives. Naturally I am delighted that we both fall off the cliff together and that colleagues only a few months younger than us in otherwise the same circumstances will qualify for the new and better pension. Thank you coalition.

    • HooksLaw

      Under the current system if you qualify for the various credits you would get that.
      The system is over complex and there has to be a cut off somewhere. The new beneficiaries will pay more NICs and for longer.

      Pensions are a minefield and once again it is something which was fudged rather than grasped by labour for 13 years, all the while the system getting worse..

    • telemachus

      TUC General Secretary Frances O’Grady said: “Today’s pensioners will be angry that they miss out on this reform and face continued threats to remove the winter fuel allowance and help with travel.
      “The increases in the state pension age redistribute from poorer people with shorter life expectancies to the better-off who live longer.”

    • telemachus

      Further I think the party of reason will sponsor judicial reviewctonlook at the disparity of current and 2017 pensioners

      • Chris lancashire

        When the see how much money the Treasury is saving I’ll bet you they don’t.

    • showmaster

      Same as you sir. I reach pensionable age just after the Granny Tax kicks in and before the £144 in 2017. I will lose the £40 quid or so but also about £5 a week in extra tax. There are 3-3.5m in the same boat and I would not give much for the chances of them voting LibDumb Or Conman ever again.

      Kids! Do not save for retirement, hide it in the mattress in gold. This bunch will steal anything, nailed down or not.

    • Fergus Pickering

      I am delighted to say that I think you are wrong. You will get far nearer to £140 than you think, provided that you have kept up the payments for 30 years. I got my pension a few years ago and it is just under £140. I had THOUGHT I would get little more than £100 but, happily for me, I was in error.

      • Border Boy

        I have a modest occupational pension so no SERPS and no entitlement to means tested benefits. Cornered I am afraid.

  • MemoryBabe

    Funny how the Spectator doesn’t mention the period to earn a full state pension will be increased to 35 year’s contributions from 30 and people with less than 10 years’ contributions will suddenly be entitled to no pension

    • Tom Tom

      So no point in bothering with State Pension or paying NIC but if you live on benefits and do not work you will be fine

      • Daniel Maris

        Well I think we are groping our way to a workable system. The missing elements are guaranteed work and a duty to look after yourself. Labour are grasping the guarantee nettle for a class of unemployed.

        We also have universal credit being introduced, an imperfect but essential part of economic reform.

        We need a compulsory after 50s insurance scheme for care in old age.

        I think the pressure of events will bring in these reforms.

        • Tom Tom

          I think Insurance Companies will collapse….the equalisation of pension benefits, the raising of retirement age means Men have less incentive to pay into private pensions. The system will collapse and be more like the German system where The State controls pension funds and private provision is a small top-up, nothing more. We are moving into an era of State Provision of All Services

  • barbie

    It mentions present pensioners get pension credit, well some do, but my friend as just had hers reduced, pensions savings element, by £5 per week. Due she was told by governement new rules. So to say the older pensioners haven’t seen reductions is not quite true. She now is down to about £11 pension credit per week, another reduction will see it all off. She’s not well off at all, as worked and built up a small occupational pension, thus only enabled to claim the savings element of pension credit. Her sister who looked after children and elderly parents gets only £60 per week old age penison, so if any body is in need of a rise this person is. Things are not fair the way pensions are given, but it appears those who are getting pension credit now, or the low state pension are no better off, in fact a lot poorer.

  • alexsandr

    they have stolen our SERPS, We paid for SERPS through our NI.

    • 2trueblue

      Agree. How can that be fair? It is no mean contribution either.

  • Cybeeria

    It’s not a single tier – 11m current pensioners will be on a lower figure. Not a good electoral move.