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Flat rate state pension worth £144 confirmed in Queen's Speech

Sweeping government reforms of retirement funding that will see new a flat-rate state pension introduced in 2016 have been unveiled in the Queen's Speech on a landmark day for future pensioners.

The Pensions Bill , which includes provision for the new single-tier pension worth £144-a-week in today's money, will be brought forward in the next year and enacted in April 2016, a year earlier than previously planned.

The Queen said it would create a 'simpler state pension system that encourages saving, and provides more help for those who have spent years caring for children'.

New pension: There will be winners and losers with the new flat-rate state pension.

It will mean a single flat-rate worth just under £7,500-a-year in today's money and replaces the current two-tiered system that is comprised of the basic state pension and second state pension (S2P - previously Serps).

Workers will have to build up 35 years of National Insurance contributions to get the full £144  - which is expected to have risen to £155 by 2016 - while husbands, wives and civil partners will no longer be able to claim a 'married person's allowance' worth up to £66-a-week based on their spouse's National Insurance record.

This will affect spouses based both in the UK and living overseas.

Additionally, years in which people have been out of work to look after small children, or sick relatives, will count towards their state pension entitlement.

  More... The end of £66-a-week married person's pension: Who - and how many - will it affect? Flat-rate pension of £144 confirmed for 2016 - while end of state second pension hands the Treasury £5.5bn Can I pay extra into the second state pension so I get more than £144-a-week flat rate in 2016? Kick back and enjoy your retirement: What you need to know about annuities and how to make the most of your pension pot New state pension age: when will you retire? Retiring soon? Find an annuity deal Could equity release be a good option for you? Find out using our free guide

The new state pension level of £144 in today's money is a cause for concern of Michelle Mitchell, director general of Age UK, who also said some women will lose out from the end of the married person's allowance.

She said: 'Age UK supports the overall aims of the single tier pension but we are concerned the proposed amount is just one per cent higher than current Pension Credit level (currently £142-a-week).

'The single tier will help many women but Age UK is particularly concerned about a small group of women who were relying on their husbands’ NI record, but will lose out under new arrangements and face a worrying future because they do not have time to change their retirement plans.

'We are calling on the Government to protect this group, for example, allowing those within 15 years of State Pension Age to retain this right.'

Other changes that feature in the bill include the rise of the state pension age to 67, which will now rise between 2026 and 2028 after being brought forward by eight years.

The date at which people can claim their pension will rise in line with life expectancy in the future, with regular reviews of the state pension age forming part of the bill.

KEY FEATURES OF THE PENSIONS BILLA single-tier state pension system, worth £144-a-week in today's money, which replaces the current two-tier system of a basic state pension and earnings-related additional state pension (S2P or Serps), from April 2016.The state pension age will rise to 67 between 2026 and 2028, being brought forward by eight years.A regular review of the state pension age in light of rising life expectancy.New rules so that small pension pots (less than £10,000) automatically follow workers when they join another scheme after moving jobs.Abolishing short service refunds, which allow those on trust-based workplace pensions with less than two years of pensionable service to get a refund on their contributions.Introducing a new statutory objective for The Pensions Regulator to monitor the long-term affordability of companies' pension schemes.Reforming the existing suite of bereavement benefits into a single 'bereavement support payment' to support people after their spouse dies

New rules will also be brought in to allow pension pots of less than £10,000 to automatically follow a worker when they change jobs.

With pensions minister Steve Webb having previously stated the changes to the system will be 'cost neutral', there are winners and losers when it comes to retirement income.

Those who would otherwise have built up decent second state pension entitlements (those who have paid NI for many years while earning between £15,000 and £40,000) can expect to have a reduced pension after 2016, as their S2P when added to the £110.15 current basic state pension may well have been in excess of £144-a-week.

They will however be allowed to keep entitlements they have already built up if they are worth more than £144-a-week and retire after 2016.

This will predominantly affect private sector workers, as many public sector workers who 'contracted out' of the S2P, entitling them only to the basic state pension, can now expect a boosted income as the basic pension rises from £110.15 to £144.

However, the end of contracting out means these workers will now have to start paying full NI contributions, so their wage packets will take a slight hit.

Married couples meanwhile who both have full NI records can now expect £288-a-week between them, compared to around £220 currently (not taking S2P into account).

The self-employed, who currently only qualify for the basic state pension and not S2P, will see their basic pension rise to £144 if they retire after 2016.

While welcoming a simpler state pension system, Chris Noon, partner at Hymans Robertson, claims that the 'vast majority' of workers will end up losing out from the new system.

 

He said: 'The reform has been positioned as a benefit, but in reality it reduces pensions for the vast majority of current employees, including those on minimum wage and part-time workers.

'The savings are then used to increase the state pensions of the self-employed and, rightly, the very, very low paid.

'A private sector employee earning minimum wage could be worse-off by up to £48-a-week in state pension when they come to retire.'

Karen Barrett, of Unbiased.co.uk, added: 'These changes could mean those who were relying on part of their spouse's pension could be left vulnerable in or leading up to retirement.

'Equally those working several jobs, each of which do not qualify for the minimum NI threshhold, or part –time, could find themselves unsupported.' 

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