The new flat rate state pension – are you a winner or loser?

Today the Government confirmed details of the proposed flat rate State Pension when it published its White Paper.

From April 2017, at the earliest, the Government plans to do away with the current system of a basic state pension and means-tested top-ups, replacing it with a universal flat rate State Pension of £144 a week.

With such a dramatic overhaul of the State Pension there will inevitably be winners and losers which I set out below.

Winners

• Stay at home mums – previously women who looked after their children would not automatically qualify for a full state pension in their own right. Under the proposed changes more women will be able to qualify for a full state pension.
• The self-employed currently earn a maximum pension of £107.45 a week but this will increase to the £144 flat rate.
• Low earners

Losers

• Those retiring after April 2017, as you will need 35 years worth of National Insurance Contributions (NICs) rather than the current 30 to qualify for the full State Pension.
• Those with less than 10 years NICs will not qualify for a state pension at all.
• High earners (which will account for less than 10% of retirees) will lose out, yet they will shoulder much of the cost of the new State Pension system.
• If the new flat rate pension came into affect in 2017 around15% of pensioners would gain by more than £2 a week, another 5% by under £2 a week, but the majority will be no worse off.
• The exact percentage of winners will vary over time but will likely peak at over 60% of retirees by 2030, with that number then dropping to about 40% in 2060, when more than half of those retiring would be worse off.
• Members of final salary schemes – as contracting out will end members will have to pay higher NICs, as will employers. Contracting out was when pension scheme members paid reduced NICs in return for a benefit similar to the State Second Pension provided by their final salary scheme, rather than accrue entitlement to the actual State Second Pension. But members will receive a reduced flat rate pension to reflect the fact they've paid a lower amount of NICs historically.

But the good news is that anyone who qualifies for the state pension before April 2017 will continue to receive their entitlement under the current system.