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Home > Pensions

By Donia O'Loughlin | Published Mar 23, 2011

Budget: 'Single-tier' state pension introduced

The Government will simplify the pensions system by introducing a 'single-tier' state pension of £140 per week, Chancellor George Osborne has confirmed.

Osborne said in his Budget address that the current system is "unbelievably complex" and that the proposed system will be flat-rate and still based on contributions.

The Chancellor said the new system will not apply to current pensioners and will take several years to implement.

He said: "The state pension system is not clear to working-age individuals what they might receive from the state, in particular from the State Second Pension, making it difficult to plan retirement saving.

"The government will look to reform the state pension for future pensioners so that it provides simple, contributory, flat-rate support above the level of the means-tested Guarantee Credit.

"DWP will shortly publish a Green Paper to consult on options for reform, which will include a proposal for a single tier pension, currently estimated to be worth around £140 a week. Moving to single tier provision would end contracting out for defined benefit pension schemes.

"In itself, this could bring significant simplification of the personal tax system."

Mr Osborne also said today the government aims to implement a more automatic way of increasing the state pension age based on regular reviews of longevity.

The state pension age will reach 66 by 2020 and 68 by 2048.

Mr Osborne said: "Given the continuing increases in life expectancy the government will bring forward proposals to manage future changes in the state pension age more automatically, including the option of a regular independent review of longevity changes.

"This should ensure the costs arising from increased longevity are spread more fairly between generations, with cost savings and improved economic growth helping to ensure sustainable public finances in the future."

Mr Osborne said that the government has accepted Lord Hutton’s recommendations as a basis for consultation with public sector workers, trades unions and others, "recognising that the position of the uniformed services will require particularly careful consideration".

The government will set out proposals in the autumn.

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