The government on Monday unveiled plans for a major overhaul to the state pension which will bring in a single weekly payment equivalent to £144 a week from 2017.
The system devised by the coalition government merges the second state pension with the basic pension and cuts out means-testing currently in place.
It is based on 35 years of National Insurance payments, and will apply only to new pensioners.
“This is a major simplification and a major advance,” Prime Minister David Cameron told BBC Radio 4’s Today Programme.
“The current system is too complex — it involves a lot of means testing and it hasn’t helped women… This will cut out means-testing and be simpler for women and the low-paid.”
Millions of people will pay more National Insurance as the state stops “contracting out” the second state pension, a variable rate currently added to the basic rate along with pension credits.
Cameron insisted: “If you have opted out of the state second pension, then yes, you will pay more, but you will pay more and you will get a better basic state pension.”
Running the new system would cost the same as the old one, he said, but it would help groups including mothers who take career breaks and the self-employed, who under existing rules are unlikely to receive the full state pension.
But unions said the new scheme would impose a heavy burden on those forced to pay more National Insurance, while shadow pensions minister Gregg McClymont dismissed the proposals as “half a plan… delayed by a year”.
NPC general secretary Dot Gibson said that future generations of pensioners were being “asked to pay an extra five years’ worth of National Insurance contributions, work longer before they can retire and end up with less than they can get today…No-one should be taken in by what is little more than a con trick.”
Brian Strutton, national officer of the GMB union, said a new flat-rate pension should be fairer than current arrangements, but warned of a “very serious consequence” of the plan.
“That is the increase in National Insurance contributions that employers and employees in defined benefit pension schemes will have to pay,” he said.
“Abolition of the contracting out NI rebate will impose a £6 billion new tax burden on workers and companies which may be a nice windfall for the Chancellor but is not fair to those who will have to pay more tax.”
Government unveils new flat-rate state pension
