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Higher earners face 1,000 cut in state pensions under new proposals to form single-tier system
Pensions Minister Steve Webb said that the proposed single-tier state pension would lead to high earners receiving around 20 a week lessUnder the plans to introduce a simpler flat rate pension, the state second pension will be abolished
03:18 GMT, 14 December 2012
Admission: Pensions minister Steve Webb
The state pensions of high earners will fall by 1,000 a year under planned reforms, the government has admitted.
Pensions Minister Steve Webb said that the proposed single-tier state pension would lead to high earners receiving around 20 a week less than under current rules at retirement.
Under the plans to introduce a simpler flat rate pension, the state second pension will be abolished.
The second pension is an extra top-up based on how much someone earns during their life and how much they have paid in National Insurance.
At present, around one million high earners approaching retirement can expect to receive 160 a week when they retire, made up from the basic state pension of 107.45 a week and the state second pension.
But under the single-tier system it is expected that everyone will receive 140 a week, which means high earners would receive 1,000 a week less than under the current system.
Mr Webb said that the exact details of the state pension reform will be set out in a White Paper that is currently at an ‘advanced stage’.
But he said that under the plans that are yet to be finalised high earners will get ‘less than they would have done’ under the present system.
Those who have already accrued state second pension benefits under the current system will still receive these.
Plans: Higher earners face 1,000 cut in state pension
However, these benefits will cease to accrue once the new pension comes in place meaning that future high earners will be worse off.
Mr Webb said that the flat-rate pension is likely to be set at around 140.
He said: ‘We have always used the phrase 140. When we do the White Paper we will update that figure.
He said that at present, a typical higher earning man close to retirement gets ‘about 160 on average’.
Mr Webb said that the reforms were being introduced as the current state pension system is overly complex.
He said: ‘We have tried to have pension systems that were earnings related in the past, we have been trying to do that for at least 30 years if not more and it just makes it fiendishly complicated.’
Pensions experts have warned that the reforms will reduce the incomes of some.
Tom McPhail, head of pensions research at Hargreaves Lansdown, said: ‘A simpler state pension is a good idea. But there will be losers, and they will be the higher earners.’