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Historic reforms to create new State Pension

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Major reforms to simplify the State Pension and provide greater clarity about what people will receive in retirement are a step closer.

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Major reforms to the State Pension – which will simplify the system and provide greater clarity to people about what they will receive in retirement – are a step closer today after the legislation became law.

The reforms will create a simple, flat rate pension, the full level of which will be set above the basic means test – currently £148.35.

In particular, women, carers and some low earners who haven’t previously received much by way of additional pension will benefit. And self-employed people, who miss out on any additional pension under the current arrangements, will be brought fully into the State Pension system for the first time, helping millions to secure a more comfortable retirement.

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.

Minister for Pensions, Steve 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 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.

Ten qualifying years of National Insurance contributions will be required to receive any State Pension under the reforms, and 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 that they meet the minimum qualifying period.

The government has also introduced the triple lock guarantee to ensure value of basic State Pension will rise by highest of inflation, earnings or 2.5% for the duration of this Parliament. And the State Pension now is a higher share of national average earnings than at any time in more than 20 years.

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. More information on the Act and what it means for individuals can be found on www.gov.uk/new-state-pension.

More about the State Pension

There are currently around 11.7 million people claiming the State Pension in Great Britain and, in total, around 12.9 million claiming the State Pension when including those who live overseas.

82% of those who receive the lowest amounts (less than £20 a week) under the current system in Great Britain are women, and in Great Britain around 1.9 million women receive a State Pension of less than £80 a week compared to around 100,000 men.

Read more information about the government’s policies on pensions

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Published 15 May 2014