Government changes to the state pension (over 100 pages!) - Our one page starting point

  • By Mark Morton
  • 16/01/2013

1.1 State pension reform: the single-tier pension

The single-tier reforms will restructure the State Pension into a simple flat-rate amount. Those over State Pension age when the reforms are implemented will continue to receive their state pension in line with existing rules. The single-tier pension will:

• be set above the basic level of means-tested support. The amount will be set nearer implementation;

• replace the State Second Pension, contracting out and out-dated additions, such as the Category D pension and the Age Addition. The Savings Credit element of Pension Credit will also close to pensioners reaching State Pension age after the implementation of the single-tier pension;

• require 35 qualifying years of NICs or credits for the full amount, with pro-rating where 35 years is not achieved. There will also be a minimum qualifying period of between seven and ten qualifying years;• be based on individual qualification, without the facility to inherit or derive rights to the state pension from a spouse or civil partner; and

• continue to allow people to defer claiming their state pension and receive a higher weekly state pension in return. The deferral rate will be finalised closer to the planned implementation date. It will no longer be possible to receive deferred state pension as a lump-sum payment.

Transition

The transitional regime will:

• translate people's pre-implementation NIC records into a simple single-tier starting amount - the 'foundation amount';

• value an individual's NIC record using single-tier rules as at the implementation of the single-tier pension. Where an individual has previously been contracted out of the additional State Pension, a deduction will be applied;

• as a safeguard, the Government will check to see if the rules of the current system would give a better outcome. The higher valuation will then become that individual's foundation amount.

For those with a foundation amount which is more than the full level of the single-tier pension, likely to be older people with many qualifying years and who have not spent significant periods contracted out of the additional State Pension, these people will receive the difference between their foundation amount and the full single-tier amount as an extra payment on top of the full single-tier weekly amount.

The Government will also carry out a review of the State Pension age every five years, based around the principle that people should maintain a specific proportion of adult life receiving the state pension. The first review will take place in the next Parliament.

pension reform: the single-tier pension Executive summary State www.dwp.gov.uk/policy/pensions-reform/state-pension/

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