New flat-rate state pension

A new flat-rate state pension likely to start in April 2017 will be outlined by the government today (Monday 14 January).

The weekly payment will be £144, plus inflation rises between now and 2017.

The current full state pension is £107.45 a week, but can be topped up to £142.70 with pension credit, and by the state second pension.

Plans to introduce legislation were announced in 2011 and detailed proposals are now ready.

These have been expected for some time, with the aim of simplifying the system by merging the state second pension with the basic state pension, to create one flat-rate payment.

A universal flat-rate payment in England, Wales and Scotland would be the biggest overhaul of the system for decades.

The new single-tier pension will be paid only to new pensioners reaching state pension age from a date expected to be 6 April 2017, the government is expected to announce.

Millions of existing pensioners, and those who qualify before then, will receive their entitlement under the current system.

More than one-and-a-half million pensioners do not claim the pension credit that they are entitled to, and the government believes that this would not occur under a simpler flat-rate system.

The self-employed are also likely to benefit, as they tend to get a lower state pension.

The government is also expected to announce that anyone who has not paid National Insurance (NI) for at least 10 years will not qualify for the enhanced state pension.

Those who have paid for less than 35 years will see their pension reduced, in a change from the 30-year threshold introduced a few years ago.

The government will outline exactly how it will phase out the state second pension, which acts as a top-up to the basic state pension.

At the moment, some prospective state pensioners will accrue a higher level of state pension than £144 a week, via a combination of their basic and state second pensions.

As the government has promised that all their accrued pension rights will be recognised, the new system may have to involve some future pensioners being paid a top-up to the new, merged, flat-rate payment.

This would recognise the contributions that they have already made for their state second pension.

Meanwhile, several million employees in the private and public sectors are opted out of the state second pension because their final-salary schemes pay an equivalent benefit.

As a result, they pay reduced NI contributions.

The change will bring an end to this system of "contracting out", with two consequences.

The government will have to decide if these individuals should receive the full flat-rate pension, if they first qualify for it after April 2017, despite the fact that they will not have not been making full national insurance contributions for the state second pension in the preceding years.

The government must also decide if these people should start paying higher NI contributions, after that date, while still in work.

Someone on an average wage who is affected in this way might have to pay an additional £270 a year but their state pension would also be greater.

Under established plans, the state pension age is rising in any case to 66 for both men and women by 2020, with further plans for this to increase to 67 between 2026 and 2028.

The state pension is expected to continue rising, as now, in line with earnings, prices, or 2.5%, whichever is higher.