Now workers face waiting until 70s for a state pension: But new flat rate means mothers won't lose out in most radical reforms for a century David Cameron and Nick Clegg will announce plans for new flat-rate pension New rate will be more generous and is expected to be worth 155 a weekBut the state pension age will increase further in years aheadIain Duncan Smith said the changes will be 'brilliant for women'
00:47 GMT, 5 January 2013
02:01 GMT, 5 January 2013
Women will benefit from the most radical pension reforms for a century – but younger workers will have to delay their retirement into their 70s and beyond, it emerged last night.
David Cameron and Nick Clegg will next week outline plans for a new, more generous flat-rate pension, expected to be worth 155 a week.
But the sting in the tail is that the state pension age – already set to rise to 67 for both men and women between 2026 and 2028 – will increase further in the years ahead.
Reforms: David Cameron and Nick Clegg are set to outline plans for a new flat-rate pension, expected to be worth 155 a week
Work and Pensions Secretary Iain Duncan Smith said women, who often fail to qualify for the full basic pension because they have taken time out from work to bring up children and have not built up enough national insurance contributions, will benefit from the reform.
‘This is brilliant for women,’ he told the Daily Mail.
‘In those years when they have been doing things like caring for a child, we will give them a notional contribution, a top-up, so that they get the full flat-rate state pension.
Support: Iain Duncan Smith, Work and Pensions Secretary, said women will benefit from the reforms
‘A woman who stays at home for a period will not now lose out in the pension stakes, which is phenomenal.’
Ultimately, the Coalition plans to link the state pension age to average life expectancy, a move which experts say could see it hit 73 for today’s 33-year-olds and 77 for those currently finishing their A-levels.
The flat-rate payment will also hasten the end of the so-called ‘state second pension’, which tops up the weekly basic state pension for better-off people who make national insurance contributions over their working life.
Mr Duncan Smith also said the move would be ‘massively pro-saving’ as it will mean an end to the indignity and bureaucracy of means-testing for millions.
‘One of the things that stops people saving is their view that what will happen is that their savings will take them into the means-test territory, but won’t go far enough to give them a decent income,’ he said. ‘A single-tier pension really makes saving worthwhile.’
The reform of the state pension, the boldest since its inception 100 years ago, is the most dramatic proposal due in a ‘mid-term review’ to be unveiled by the Prime Minister and Mr Clegg.
The document is designed to provide a ‘progress report’ at the midway point of a five-year fixed-term parliament.
But it will also set out a fresh programme designed to prove that the coalition partners have a shared vision beyond austerity.
Other expected measures include:
■ Childcare reforms to reduce costs for working families
■ An overhaul to the way that Britain cares for its elderly, with a cap on the sums people have to pay towards their care
■ Private firms and investment funds to compete to build, operate and maintain new tolled motorways and trunk roads, and plans to reduce youth unemployment
Welcome: Iain Duncan Smith said that the changes will be 'brilliant for women', adding that single-tier pensions make 'saving worthwhile'
Mr Duncan Smith has embraced the
single-tier pension, the brainchild of Lib Dem pensions minister Steve
Webb, and persuaded sceptical colleagues, including Chancellor George
Osborne, to go ahead.
The Treasury’s doubts about the cost of the reform are understood to have been met by reassurances that as the state pension age rises, and the state second pension is phased out, it will largely pay for itself.
Under the reforms, a new payment, worth 140 a week today, will be introduced for all soon after the next election in 2015, by which time it will be worth an estimated 155 a week.
The flipside is that the state pension age will rise further.
After the Second World War, the state pension age in the UK was set at 65 for men, at a time when life expectancy for a man was 66.4 years and 72.5 years for a woman.
But life expectancy has risen to 77 years for a man and 82 years for a woman in England. The latest estimates suggest that by 2056, it will be 84 and 89 years respectively.
If the pension age rose from now in line with the change in life expectancy over the past three decades, someone born in 1970 could be forced to wait until 71 before getting their state pension. But if life expectancy and improving mortality rates continue at their current levels, the state pension age could hit 77 by 2071.