I know that National Enterprise Network members will join me in welcoming the Coalition Government’s plans to simplify the state pension system with the creation of the “Single Tier” pension, which will for the first time ensure the availability of a pension for the country’s 4.2 million self-employed.

The reforms create a simple flat rate pension which will be set above the means test (currently £142.70) and based upon 35 years of NI contributions.  It will also benefit women and low earners – often also self-employed – who under existing rules find it difficult to earn a full state pension.

We’ll watch developments with interest, as I’m sure you will, but our clients potentially will have one less thing to worry about in the future!  That said, it’s no reason for them not to plan for the future and I’m sure you will continue to recommend additional saving to supplement any state pension received!

Key facts

  • There are currently 11.5 million people claiming the state pension
  • 2.8 million women receive a state pension of under £80 a week compared to only 474,000 men.
  • Some 3.2 million individuals (2.6 million households) – receive Pension Credit to supplement their retirement income.

Key benefits of the reforms:

  • 750,000 women who reach pension age in the decade after Single Tier is introduced will on average get an extra £9 a week
  • Under the present system, 4.2 million self-employed people are prevented from getting a full state pension. The Single Tier will now properly recognise their NI contributions.
  • By the 2040s, over 80 per cent of people reaching State Pension age will receive the full weekly amount of single-tier pension.
  • A significant reduction in means testing. The proportion of people reaching State Pension age after the introduction of single tier who qualify for Pension Credit will be halved compared to the current system, and remain under 10 per cent up to 2060.

Key features of the Single Tier pension:

  • A single, flat rate state pension payment set above the basic level of the means test, which is currently £142.70 – compared with a current basic state pension of £107 per week and highly variable and unpredictable levels of additional state pension. The White Paper assumes £144 a week start rate, which is up-rated annually by the ‘triple lock’
  • An end to different Basic and Additional State Pensions, and contracting out of defined benefit pension schemes. Savings credit abolished.
  • 35 qualifying years to receive the full amount with over 80% of new pensioners achieving this by the 2040s
  • A minimum number of qualifying years (up to 10 years) to get any single tier
  • Self-employed people brought fully into the state pension for the first time
  • All state pension rights accrued under the old system will be recognised, so nobody will lose out on any pension they have earned.
  • These changes will provide people with a platform to save for their retirement and follow last October’s introduction of automatic enrolment

A full copy of the White Paper can be downloaded at: www.dwp.gov.uk/single-tier-pension/