Radical shake-up of state pensions is 'fair', Prime Minister insists

 

David Cameron today defended the Government's plan to introduce a single "flat-rate" state pension which could result in some workers facing higher National Insurance contributions to pay for it.

Mr Cameron said plans for a unified pension rate - equivalent to around £144 in today's money, and due to be introduced for new pensioners from 2017 was "fair".

"This will help a lot of women and a lot of lower paid workers who otherwise wouldn't get a decent state pension," said Mr Cameron.

Ministers said the reform will create a simple flat-rate pension set above the means test (currently £142.70) and based on 35 years of National Insurance contributions, and will "hugely benefit" women, low earners and the self-employed, who under existing rules find it almost impossible to earn a full state pension.

However around six million workers will face higher National Insurance payments in future as the practice of "contracting out" the state second pension to employers is ended.

Those affected are expected to include more than a million private sector staff enrolled in final salary schemes, and an estimated five million public sector workers.

The GMB union said there could be "very serious consequences" which could affect an agreement on public sector pensions, while the National Pensioners Convention (NPC) described today's White Paper as little more than a "con trick" for future generations, by offering them less than they get now, asking them to pay more and work longer before they can get it back.

But ministers will argue that, by replacing today's complex system of add-ons and means-testing, the single tier will provide certainty to people about what they will get from the state and provide a better platform for them to save for their retirement.

Work and Pensions Secretary Iain Duncan Smith said: "This reform is good news for women who for too long have been effectively punished by the current system.

"The single tier will mean that more women can get a full state pension in their own right, and stop this shameful situation where they are let down by the system when it comes to retirement because they have taken time out to care for their family."

Pensions Minister Steve Webb said: "The current state pension system is too complicated and leaves millions of people needing means-tested top-ups. We can do better.

"Our simple, single tier pension will provide a decent, solid foundation for new pensioners in an otherwise less certain world, ensuring it pays to save."

Brian Strutton, national officer of the GMB union, said a new flat-rate pension should be fairer than the present arrangements, but warned of a "very serious consequence" of the Coalition's plans.

"That is the increase in National Insurance contributions that employers and employees in defined benefit pension schemes will have to pay," he said.

"For employers that is 3.4% of the NI ranking earnings and for the six million employees affected it will be an extra 1.4%. Most DB scheme employers and members will find this unaffordable so will need to renegotiate their schemes.

"A good example is the Local Government Pension Scheme which has just been reformed by unions and government and would face an unaffordable extra NI bill of several hundred million pounds.

"Just as the Treasury legislation to reform public sector pensions is going through Parliament, the Department for Work and Pensions (DWP) is proposing to blow it all out of the water by completely rewriting the state and occupational pension landscape."

Mr Strutton said the Treasury and DWP needed to "get their act together" to avoid reopening the public service pension deals, adding: "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."

Unions have been embroiled in a bitter dispute with the Government over its controversial public sector pension reforms, which led to a series of strikes.

An agreement was struck in local government, but unions in other areas have refused to sign up to new arrangements.

NPC general secretary Dot Gibson said: "The White Paper offers nothing to existing pensioners and leaves many of them to struggle on lower pensions and a complicated means-testing system.

"The worst affected will be around five million older women who don't have a pension anywhere near £144 a week and would clearly benefit if they were included in the new arrangements, but look like they are going to miss out.

"This will only add insult to injury to millions who have already made a contribution to our society but are still living in poverty.

"The outlook for future generations of pensioners is even worse. They are 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. At the moment you only need to contribute for 30 years in order to get a full state pension, and if you do, you can get £150 a week when you retire at 65.

"What the Government is trying to sell is a plan for people to pay in for 35 years, get £144 a week and have to wait at least until 68 before they can collect it. No-one should be taken in by what is little more than a con trick."

Shadow pensions minister Gregg McClymont said the Coalition had originally suggested the reforms would be introduced in 2016.

"The chaos surrounding the Government's relaunch gets worse and worse. These pensions proposals are just half a plan yet they are still delayed by a year," he said.

"With the granny tax, this Government has already established a track record of incompetence and secrecy so we will look at the detail, but the Government should come clean immediately and set out exactly who the losers are."

Joanne Segars, chief executive of the National Association of Pension Funds, said: "The end of contracting out will become a key issue in both the private and public sectors as the Government moves towards a much-needed overhaul of our state pension.

"The transition will have to be handled very carefully to ensure a fair result for employers and savers."

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Brendan O'Carroll as Agnes Brown in the 2014 Mrs Brown's Boys Christmas special
tvCould Mrs Brown's Boys have taken lead for second year?
News
Members and supporters of the lesbian, gay, bisexual, transgender (LGBT) community walk with a rainbow flag during a rally in July
news
Sport
Chelsea midfielder Cesc Fabregas
footballChelsea vs West Ham live kicks off coverage of all 10 of Boxing Day matches
News
peopleIt seems you can't silence Katie Hopkins, even on Christmas Day...
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
i100
Arts and Entertainment
Jack O'Connell stars as Louis Zamperini in Angelina Jolie's Unbroken
film review... even if Jack O'Connell is excellent
Arts and Entertainment
Madonna is not in Twitter's good books after describing her album leak as 'artistic rape and terrorism'
music14 more 'Rebel Heart' tracks leaked including Pharrell Williams collaboration
News
news
Arts and Entertainment
Wolf (Nathan McMullen), Ian (Dan Starky), The Doctor (Peter Capaldi), Clara (Jenna Coleman), Santa Claus (Nick Frost) in the Doctor Who Christmas Special (BBC/Photographer: David Venni)
tvOur review of the Doctor Who Christmas Special
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Ashdown Group: Senior Marketing Executive- City of London, Old Street

£40000 - £43000 per annum + benefits: Ashdown Group: Senior Marketing Executiv...

Ashdown Group: Marketing Manager

£40000 - £43000 per annum + benefits: Ashdown Group: An international organisa...

Ashdown Group: Internal Recruiter -Rugby, Warwickshire

£25000 - £30000 per annum: Ashdown Group: Internal Recruiter -Rugby, Warwicksh...

Ashdown Group: Marketing Manager/Marketing Controller (Financial Services)

£70000 - £75000 per annum + benefits: Ashdown Group: Marketing Manager/Marketi...

Day In a Page

A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all