Single-tier state pension shake up

Plans for a 'simple' single-tier state pension unveiled by the Government could leave younger people worse off in the long run, the Institute for Fiscal Studies (IFS) has said.

The Government's white paper lays out plans to replace the £107.45 a week basic pension, and various means tested top-ups worth up to £142.70, with a flat rate of £144 from 2017 at the earliest.

It said the single-tier would replace the 'complex system' of add-ons and mean's testing currently in place, providing greater certainty about the money individuals receive and a better platform for people to save for their retirement.

Minister for Pensions Steve Webb said: "The current state pension system 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."

The move will particularly benefit women, low earners and the self-employed, who under existing rules find it difficult to earn a full state pension.

However, while figures from the white paper and the IFS show that those reaching state pension age before 2060 would be better off under the reforms, those retiring in or after this time would be worse off.

Rowena Crawford, senior research economist at the IFS, said overall the proposals would bring about a welcome simplification.

"However, it is important to be clear that - while there will be a fairly complex pattern of winners and losers from the reform in the short-term - the main effect in the long run will be to reduce pensions for the vast majority of people, while increasing rights for some particular groups (most notably the self-employed)."

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