Policy

State Pension simplification

Issue

The government wants to improve the State Pension system because:

  • millions of people don’t save enough to provide the income they are likely to want or expect in retirement
  • the current system’s complexity makes it difficult for people to make informed decisions about whether, when and how much to save
  • inequalities in the system affect some groups, in particular those with broken work histories and those who are self-employed

The government has other pension reform policies including:

Actions

The government wants to reform the State Pension system by:

Background

Pensioner incomes currently represent a very complex aggregation of state and private payments, making it difficult for anyone to predict what income they will receive in retirement. Also, a significant decline in occupational pension saving since the 1970s threatens to change the outlook for future generations of pensioners.

The number of people saving in an occupational pension scheme has fallen from a peak of just over 12 million active members in 1967 to 8.2 million in 2011. The government estimates that almost 11 million people in the current workforce face inadequate retirement incomes.

In 2002 an independent Pensions Commission was established to consider the long-term challenges facing the UK pension system. It identified a number of areas for reform, including:

  • undersaving for retirement – millions of people were not saving enough to deliver the income they were likely to want or expect in retirement
  • complexity – the complexity of the State Pension system stopped people from making informed decisions about whether, when and how much to save
  • inequalities in the pension system – concerns that some groups, in particular women, have reduced opportunities to save for a decent income in retirement
  • sustainability – to ensure that the system remains fair between the generations and sustainable, the State Pension age should rise to reflect increases in life expectancy

Welfare reform communications toolkit

Our welfare reform communications toolkit helps explain how DWP is changing the welfare system. It covers:

  • what we are changing
  • why we are making the changes
  • when we are making the changes

Who we’ve consulted

The government consults widely with pension industry professionals, pension scheme trustees, representative organisations, regulators and statutory bodies.

On 8 May 2014 we published a consultation on the draft regulations relating to the abolition of defined benefit contracting-out of the additional State Pension for people in occupational pension schemes.

The Work and Pensions Select Committee considered Part 1 of the draft Pensions Bill in a process known as pre-legislative scrutiny. This involved the committee taking evidence from interested organisations and individuals and producing a report about the draft Bill. We published the government’s response to the Select Committee’s report on 10 May 2013.

We consulted on the ‘abolition of contracting out – a statutory override for Protected Persons Regulations’ from 18 January 2013 to 14 March 2013.

We launched a 12-week public consultation on State Pension reform on 4 April 2011 with the publication of ‘A state pension for the 21st century’. We published a summary of the responses in July 2011.

Bills and legislation

The Pensions Act 2014 put into law changes to reform the State Pension system and implement the single-tier pension.

The Pensions Act 2011 put into law changes to State Pension age and other changes affecting state pensions. These include changes to the timetable for equalising men and women’s State Pension age and increasing the State Pension age to 66.

The Pensions Act 2008 started to simplify the State Pension system by consolidating the additional State Pension and removing rules about contracted-out rights.

The Pensions Act 2007 put into law the reforms to the State Pension system set out in the White Paper, ‘Security in retirement: towards a new pension system’, published in May 2006. This included linking annual cost of living increases in basic State Pension to earnings rather than prices and changes to the State Pension age that took effect from 2010.

Impact

Impact assessments for the provisions in the Pensions Act 2014 to reform the State Pension system and implement the single-tier pension are available on the Pensions Act 2014 page.

On 22 July 2014 we published an update to the main analysis of the impact of the single-tier pension reforms. This brings the analysis into line with assumptions used in the Office for Budget Responsibility’s (OBR) Fiscal Sustainability Report published on 10 July 2014.