A new flat-rate state pension of £144-a-week will come into effect in 2017 at the earliest, ending the complexities inherent within the current system, the government has announced.

In a White Paper published today, it was outlined that the state pension will rise in line with inflation but will only come into effect for new pensioners. The current full state pension is £107.45 a week. However this figure can be increased to £142.70 after pension credits and with Second State Pension benefits. In order to receive the full state pension, an individual will have to pay National Insurance contributions for a minimum of 35 years.

The government has also stated that the state pension age will directly be linked to life expectancy. The state pension age is expected to rise to 66 in 2020 and 67 by 2028.

Pensions minister Steve Webb stated that “the overall cost of the new system will be the same as the one it replaces,” and confirmed that “there will be no further changes” to the state pension during the life of the current Parliament.

Responding to the announcement, NAPF chief executive Joanne Segars said: “Today’s announcement for a simpler, more generous state pension is a much needed shake-up that will ultimately help millions of pensioners and savers.

“For the first time in a generation, people will know that it pays to save, and that whatever they put aside won’t be eroded by means-testing when they retire. We welcome the government’s strong commitment to radical change. This blueprint is a key step towards a system that will help people retire with confidence and dignity.”

TUC general secretary Frances O’Grady welcomed the change but emphasised that issues still remain. “Big questions remain about how the Treasury intends to fund the reform, both in the short and long term. We were told the reform would be cost-neutral, but there are signs that the Chancellor is using this reform to take money out of the pensions system.

“We are extremely concerned at the impact on both public and private sector employers who will face a big 3.4 per cent increase in national insurance contributions. Unless public sector employers are compensated for this, it will lead to big cuts across public services and, in particular, could derail the local government scheme proposals where councils are already under extreme financial pressure. In the private sector the government needs to ensure that this does not lead to further scheme closures,” she added.

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