On 14 January, the Department for Work and Pensions (DWP) published its White Paper outlining proposals to reform the State Pension into a single-tier benefit.
It announced that the new single-tier pension would not be introduced before April 2017 and will apply only to people who reach State Pension Age (SPA) from that date. Those who have already passed SPA before the introduction of the single-tier pension will not be affected and will continue to receive their State Pension in line with existing rules.
Unexpectedly, the Pensions Minister – under pressure from the Chancellor it would seem – issued a rather rushed announcement just days before the Budget, confirming that the new Single-tier pension will be introduced with effect from April 2016, bringing a further 240,000 people within its scope.
The single-tier state pension will replace both the current Basic State Pension and the State Second Pension with a flat-rate payment and the full rate will be set above the basic level of means-tested support (currently £142.70 per week). It is expected to be increased each year in line with the “triple lock” that applies currently to the Basic State Pension (the greatest of CPI inflation, earnings growth and 2.5%).
Individuals will need 35 qualifying years of NICs or credits to receive the full weekly rate of the single-tier pension. Those with fewer than 35 qualifying years will receive a proportionately reduced single-tier payment, as long as they satisfy the minimum qualifying period. This is yet to be finalised, but will be between seven and ten qualifying years.
The introduction of the single-tier pension will coincide with the abolition of contracting out of the state second pension for defined benefit schemes.
Transitional arrangements
Future pensioners (i.e. those under SPA at the date of the changes) will have their existing accruals under the Basic and State Second pensions recognized as a “foundation pension” in April 2016. Any entitlement above the full single-tier pension will be a “protected pension”, although it will be increased only in line with Consumer Price inflation so, although described as “protected” it may well have disappeared completely by the time you reach State Pension Age.
The single-tier pension will be an individual qualification, so there will be no facility to inherit or derive rights from a spouse or civil partner.
The Government has also laid the foundations of a framework for regular reviews of SPA, conducted by an independent body. SPA will be reviewed every 5 years, with future pensioners being given at least 10 years’ notice of any change.