Personal Pension  

State pension to increase by at least 2.5% a year

The full level of a flat rate state pension will be set above the basic means test, currently at £148.35, after the legislation became law, the Department for Work and Pensions has confirmed.

When it was first proposed by the DWP the weekly pension was set to be £140 per week but today (15 May) the government confirmed the full level will be higher.

The government expects that in the first 10 years after implementation, around 650,000 women will benefit from the single-tier valuation of their pension at 2016, receiving on average £8 a week more in state pension.

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The DWP confirmed the new rules mean 10 qualifying years of national insurance contributions will be required to receive any state pension under the reforms.

For people who start their national insurance record after the reforms are introduced, the full level of the new state pension will be based on 35 years of national insurance contributions.

Transitional arrangements have been designed to protect people’s contributions prior to 2016, provided they meet the minimum qualifying period.

The government has also introduced a triple lock guarantee to ensure the value of the basic state pension will increase by the highest of inflation, earnings or 2.5 per cent for the duration of this parliament.

The new state pension legislation is contained in the Pensions Act 2014, which also provides for other reforms to the state pension age, bereavement benefits and private pensions.

Steve Webb, pensions minister, said: “The new state pension will replace the current complex mix of basic and additional state pension which successive governments have tinkered with so much over the decades.

“It will give people clarity and confidence about what income they will get from the state in their retirement. In addition, the state pension reforms will benefit those who have historically done poorly under the current 2-tier system.

“I want to see us build a fairer society within a stronger economy. That means ensuring people have a simple, better state pension in retirement which protects them from poverty and provides a solid foundation for them to save for their future.”