£400 pension increase for women passes into law

The pensions minister claimed the flat rate state pension, set at £148,35, will benefit women, carers and low-earners who previously received little from the state, as well as self-employed people being brought into state pension system for the first time.

In a statement published shortly after the Pensions Act received royal assent last week, Mr Webb 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 reforms will benefit those who have historically done poorly under the current two-tier system.”

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However, figures released by the National Employment Savings Trust have highlighted the need for people to save much more into private and workplace pensions of their own accord.

The state-sponsored workplace pension provider estimated that a 22-year-old earning £20,600 with qualifying earnings of £14,828 today would need to build up a retirement pot worth £124,000 by the age of 68 to enjoy a “comfortable” retirement, even when including the state pension.

The individual in question would have saved enough to receive a basic retirement income of £6,760 on top of the state pension, which will be worth £7,500. The figures are based on a contribution rate of 4 per cent from the employee, 3 per cent from the employer and 1 per cent tax relief.

Adviser view

Alan Higham, founder of Milton Keynes-based Retirement Angels, said: “The state pension age is likely be over the age of 70 for today’s 22-year-olds. Even at age 75, the expectation of £15,000 a year in total is unlikely to be met.”

Partnership, the annuity provider, has found the average pension saver is aiming to retire with a pension pot of £74,406. Andrew Megson, managing director of retirement at Partnership, said: “While many people have been successfully managing their finances throughout their working lives, making choices at retirement require a slightly different set of skills. Not only do they need to have an accurate and honest view of just how much their pension assets are worth, but also determine how long these need to last in order for them to enjoy a good standard of living in retirement.”