New £144 State Pension: all you need to know

Rebecca Rutt
by Lovemoney Staff Rebecca Rutt on 14 January 2013  |  Comments 21 comments

The Government has confirmed plans for a new flat-rate State Pension of £144 a week.

New £144 State Pension: all you need to know

A new flat-rate State Pension of £144 a week will be introduced in April 2017, the Government has announced.

The changes will see the biggest ever reform to the pension system in the UK. It’s hoped the entire system will be simplified under these new plans, which were first mooted in 2011.

What is changing

Pensioners can now get £107.45 a week if they have the right number of qualifying National Insurance (NI) years. The amount can also be topped up to £142.70 with both pension credit and the Second State Pension.

The pension system in the UK has been slated because of how complicated it is to work out. This is why a single flat-rate amount is to be brought in.

Pensioners who reach State Pension age from 6th April 2017 will be able to claim the new amount.

But the new system has been criticised as it makes no distinction between rich and poor pensioners. Those retiring before 2017 will miss out on the increased amount available, while low earners and the self-employed will benefit.

The State Pension age is also changing. It is rising to 66 for both men and women by 2020 and should go up further to 67 by 2028.

National Insurance contributions

Changes are also happening to the number of years of NI contributions a pensioner needs.

Pensioners will now only be able to get the full State Pension if they’ve paid NI contributions for 35 years, a five-year increase from the current level. The minimum number of years to start receiving a State Pension will be ten.

Many pensioners currently opt-out of receiving the Second State Pension because their final-salary pension schemes pay the same amount. This means they pay less money in NI.

As the Second State Pension will be phased out under the new system, everyone will be paid the same amount and there won’t be a choice to opt-out.

It’s unclear if these people will start receiving a full flat-rate pension if they haven’t made enough NI contributions. If they are able to get this higher amount, it's likely they'll need to pay more in NI contributions.

Who will benefit from the changes?

A clearer pension system should benefit everyone, as at the moment it’s extremely complicated.

“Despite years of tinkering, we still have a State Pension system that is not fit for purpose.  It is creaking at the seams. It has been patched up so many times and is now just a complex web of different parts that almost nobody understands,” explains Dr Ros Altmann, Director General for Saga.

In particular the self-employed will benefit as they are currently only able to receive £107.45 a week as they aren’t able to build up a Second State Pension. Those pensioners who are paid less than £144 a week will also benefit from a higher allowance.

Women have traditionally lost out in the current pension system, especially those approaching retirement, because they will often take time out of work to care for children which means they have a smaller NI pot built up.

In 2010 for example, 30% of women retiring had entitlement of less than 60% of the basic State Pension, compared to 2% of men. This will change under the new system as everyone will be able to claim the flat-rate – if they have enough qualifying NI years.

However, people with less than ten years' NI contributions will lose out because they won’t be able to claim. Higher earners with a pension allowance of higher than £144 will also lose out as this will be reduced to the flat-rate amount.

“With these proposals, however, future pensioners should eventually have a system that is simple, clear and understandable. They will know the deal. It will take time to get there, but we will be on the right path,” adds Altmann.

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Comments (21)

  • AFlondon
    Love rating 18
    AFlondon said

    It would be helpful if people didn't keep quoting the figure of £107.45 for the Basic State Pension. There is a widespread misapprehension that this is a flat-rate benefit. That is in fact the maximum figure, if you have made enough years of National Insurance contributions. The last statistics that I've seen said that only about 60 per cent of current pensioners are getting the full amount. The same applies to the new "flat-rate" pension, which, if you read the small print, isn't a flat-rate pension at all.

    Report on 14 January 2013  |  Love thisLove  1 love
  • driver67
    Love rating 26
    driver67 said

    Nope; I still don't understand it.

    I'm 60 in May, Hopefully will get a BT pension that I assume will still be valid (I left in 1992) and I have a private pension that is worth Sweet Fanny Adams.

    So what was the point of me become an enterprising self-employed person, Mr Cameron? (Oh sorry, I didn't realise you're busy at the moment helping some friends avoid paying tax...)

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  • digger79
    Love rating 0
    digger79 said

    I reach retirement age in 2015 by which time I will have paid 45 years of contributions. So it looks like I will miss out on the increase having paid an extra10 years more for the privilege.

    Sounds about right.

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  • Tanni
    Love rating 92
    Tanni said

    Wait for the pension bubble to blow up in a decade or two.

    Ageing population with fewer babies being born. Meaning less future tax payers resulting in a top heavy system of pensioners who will not get what they expect to be a decent pension and a decent retirement.

    More tax payers are needed, more jobs need creating; so watch this space as the floodgates to immigration will be blown open again to entice immigrants to pop over and add to the tax collected....simple really.

    The govt has ruined the pension and benefit system.

    The last 40 years has seen state pensions ruined, elderly people having the pension and retirement boundaries changed ( breach of contract by the thieving negligent govt) so its harder to retire early.

    The next generation of pensioners will also see the thieving lying governments changing the boundaries again and seemingly taking away the dignity, respect, independence of pensioners.

    The govt cannot be trusted with pensions. Governments have always had short term interests and such should consult the nation via a referendum before messing about with our pension funds.

    Just look at the audit of the coalition govt and it's promises that's it's kept and broken....if this govt was a company it would have been closed down and the directors thrown in jail.

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  • Mike10613
    Love rating 626
    Mike10613 said

    @Tanni, we won't need more people to keep the next generation of pensioners; we will need more computers and technology. You are thinking like a Tory that wants more slaves. Watch as all the checkout girls disappear out of the supermarkets and we do it ourselves. Unless the government imports more people and we have to find them minimum wage jobs...

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  • rbgos
    Love rating 86
    rbgos said

    driver67 - I know nothing of your personal circumstances, so I wouldn't want to comment directly... BUT... as a general principle becoming an "enterprising self-employed person" means having to take responsibility for one's own pension arrangements. This means setting up a private pension, and paying enough into it to ensure that it's worth more than "Sweet Fanny Adams" when you come to retire.

    I do appreciate that the value of that pension pot, and the annuity you can buy with it, has been completely screwed by the collapse of the stock market and bond returns - but that can hardly be left at the feet of the current government, the collapse hit before they took power. It is (very) tempting to blame Gordon Brown, for spending well beyond the government's income despite the long boom years, which ultimately led to the current crises, but in honesty most other countries were doing the same, so it probably seemed like a good idea at the time (and he knew he would never be around long enough to clear up the mess..).

    (In the interests of disclosure, I am (effectively) self-employed... and I'm not paying into a private pension yet... so I'm failing to follow my own advice! But I know I need to start doing so as a matter of urgency!!!)

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  • jimsbubblecar
    Love rating 0
    jimsbubblecar said

    Rebecca are you saying that my £176 state pension will be cut to £144 in the near future and if so will this be phased and when exactly will this happen.

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  • electricblue
    Love rating 769
    electricblue said

    Let's not facts get in the way of the usual gloriously left-wing claptrap comments.....

    Employment and Self-Employment are at historically record levels as is Self-Employment. EU membership means that the 'flood gates' have been open for years. The economy is crippled by those on public sector pensions and final salary schemes, the ranks of whom were swelled to absurd proportions under Labour government. Manufacturing is huge in the UK, but education standards are so poor that finding the right people for jobs is increasingly difficult. The Facebook generation can barely string together coherent sentences to the point that being unemployable takes on a far greater statistical importance than being unemployed. Ex-pat Brits. decimated many economies in Eastern Europe by causing huge increases in property prices and whilst it may be common to complain about an influx of Eastern Europeans working here, at least they are filling important job vacancies, paying taxes and raising some extremely bright children who will, as many did after the Second World War, end up more British than the British.

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  • silkycat
    Love rating 49
    silkycat said

    Jimsbubblecar should be OK as existing pensions above the £144 rate will be protected after the new rate starts in 2017.

    However there are still anomalies - my wife and I will both turn 61 this year within a week of each other. Under the current rules she will get her full pension (she has made sufficient contributions to qualify) in Sept 2014 at the £107.45 rate. As I shall not turn 65 until after 5th April 2017 I'll be on the £144 rate which seems hardly fair.

    Of course, all this is still all speculation as there is the small matter of a General Election to come in 2015. Is David Cameron trying to buy our votes already? Who knows what will happen to pensions in the future anyway?

    We were paying additional voluntary contributions towards my wife's pension when you had to get in 44 qualifying years. Then the qualifying amount was cut to 30 when we had got her up to 37 years. Nobody offered a refund even though arguably our money had been taken under false pretences.

    Now the qualifying rate is going up again to 35 years. How on earth are people supposed to plan for their long term future if succesive governments continue to meddle.

    It doesn't seem that long ago that we were all being told that we would be able to retire at 55! Surely there are advantages to be gained by getting people to retire earlier when there are younger people eager to get into the jobs market.

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  • jennysue19
    Love rating 6
    jennysue19 said

    I retired in May last year and currently receive just under £200 a week comprising State Pension and Second Pension. I also receive a small amount of housing assistance - £14 a week, and the fact I receive that via Pension Credit also qualifies me for a very considerable discount on my Council Tax. As I understand it, the admin. of Council Tax discounts will now pass to my local authority, but as a pensioner currently in receipt of a discount, I should not be disadvantaged.

    However, it is not clear that means tested benefits will continue to apply after 2017 so I could lose both the housing assistance AND the council tax help. Currently I am still living in the marital home following a marriage break up and paying the whole of the mortgage with the assistance as stated. If I eventually have to sell and share the proceeds, I will lose entitlement to any help at all because of the amount of capital I will have. If I bought an annuity with the amount I expect to have, it will not make enough difference to overcome the increases in my outgoings,

    I will not get enough to buy a property outright so will have to rent privately which will steadily eat into my capital until it is gone AND pay full council tax. Local rents are considerably higher than I currently pay in mortgage even for the most modest flat so what do I do when my capital runs out if means tested help is not available? Remarks recently made by younger people who seem to think that ALL pensioners even those in receipt of only State pensions are well off, make me want to just give up and take an overdose now because my long term future is grim.

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  • Rebecca Rutt
    Love rating 0
    Rebecca Rutt said

    Hi jimsbubblecar,

    Any existing pension entitlements will be protected.

    Thanks,

    Rebecca

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  • Neds
    Love rating 0
    Neds said

    I fall into the category of having to work extra years to get my pension, in line with equality laws. My pension is due on 06 March 2017.

    Can you confirm whether when the new flat rate comes in it only applies to people who will get their pension after 06 April 2017

    Not only do I have to wait longer for my pension but it looks like I will miss out on getting the new flat rate pension of £144. The last quote I had was £107 plus a small extra amount.

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  • Rebecca Rutt
    Love rating 0
    Rebecca Rutt said

    Hi Neds,

    The new flat-rate pension will only apply to people who reach state pension age after the April start date. Those people who reach the state pension age before then will get a pension based on the current system.

    Thanks,

    Rebecca

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  • Vern54
    Love rating 14
    Vern54 said

    Okay you will receive £144 in today's rates. What is being used to update it annually (CPI or RPI), and on what date will that calculation take place?

    If someone has worked only ten years, what will they receive?

    Do older immigrants receive any pension, especially if they have worked for less than ten years?

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  • retiree
    Love rating 0
    retiree said

    Re: this new state pension proposal:

    There are several categories of people who even if they get a state pension or equivalent - it will not be enough to live on.

    a)Nothing is being mentioned about migrants coming into the country who now qualify to get the minimum income guarantee - which is higher than the basic state pension, but also get lots of other benefits (that normal pensioners don't get) because they are receiving a means tested benefit.(Housing benefit/council tax help/extra heating allowance etc)

    So they may receive more and yet not have paid a penny into the system.

    If they haven't paid 35 years of contributions they won't be allowed to starve.

    Other countries insist migrants produce proof that they won't be a financial burden before they are allowed in. We are too generous, but can't afford to be any more.

    b)The large numbers of people who have been out of work and not have built up a complete 35 years of contributions and have few savings - they will need extra help to survive.So they will need mean testing to get extra to have enough to live on.

    c)The new amount of state pension will still not be enough to live on unless you have some other work/private pension, and they say you will have had to pay 35 years contributions to get the full new pension.

    So what if you don't have enough to live on - there will still need to be a means test to enable people to get further financial assistance - so it won't eliminate means testing as they seem to be suggesting.

    d)There will be an awful lot of people who have taken out interest-only mortgages, and are unlikely to be able to pay them off (because investments have crashed)- as the previous generation did with payment mortgages that were planned to be paid off by retirement age. So they will need probably more than the state pension amount just to pay their extended mortgages or move to the rental market and have to pay an inflated private rent as there is an impossibly long waiting list for social housing.

    e)There will not be the generation living in subsidised council houses - but will need all of their pension to pay just their social housing rent - so will need income support for everything else. Housing benefit will still be needed.

    So unless they bring back the Victorian concept of the Workhouses - there will stil be a great need for financial support, and therefore means testing.

    Why not just scrap national insurance contributions altogether - as it doesn't go into your own personal 'pension pot' - it is just another form of tax.

    So why not just collect it as tax and just assign a percentage for pensions and health/NHS etc.

    This would save a massive amount in admin. costs of collection and calculation/recording of deductions etc. yet every tax payer would be contributing.

    Extending the retirement age is easy when you are just talking numbers - but people actually get tired and/or can't keep up with rapid changes, not to mention general failing health - especially with the obesity/sedentary lifestyle knock-on effects - unlike the previous generation who were a lot more active.

    Reducing hours is the preferred option, but it depends if you can afford to live on a reduced income.

    If women are to work to 66 or later - there is a whole block of people removed from the care system - grannies looking after grandchildren, people looking after their elderly parents, or disabled relatives/children - so who is going to do all this work - people won't be able to afford to pay for care - so who will - Social services and local Authorities are already overstretched?

    There is a whole black hole looming for the next generation.

    You will either be wealthy enough to afford your retirement or if not the future looks pretty bleak - we might be forecast to live longer - but what will the quality of that life be like?

    From: A lady pensioner who gets a full basic state pension because I paid full NI contributions, but get nothing of my husband’s 53 years of contributions because he died just after retiring and you then only get the higher of the two.We were silly enough to build up savings that penalised us from getting any other help.

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  • jinky44
    Love rating 1
    jinky44 said

    I worry when the Tories tells us they are changing things that will benefit us

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  • amwell44
    Love rating 77
    amwell44 said

    I would worry if it was anyone but the Tories - especially Labour, whose G Brown destroyed the private pensions industry in one fell swoop, by removing their funds' tax exempt status.

    As for NI, it is a giant Ponzi scheme, simply paying benefits out of contributions. If it had been established at the outset in 1948 as a funded scheme, with the assistance of the insurance industry, we would all be far better off - blame Labour again.

    Silkycat, your wife required 39 contribution years. It was 44 for men and I was in that category. So you got close.

    It has always been a lottery. If I had been born five months later, I would have required only 30 years' contributions (applicable to men and women). As it was, I had spent some years working overseas - transferred by a British company, who never said or did anything about my State pension entitlements, of course - so I had only 37 qualifying years. The solution is to work longer, if you are healthy and can survive the bearpit. As my old Aunty said: If you have your health you have everything. I am 68 and have a job (overseas). I love working and being able to pay my way. Still have a big mortgage to worry about though and Retiree has a point there.

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  • The Democrat
    Love rating 26
    The Democrat said

    I have been reading the small print on the SRP proposals today. Enhancement stays (though at what rate) but lump sum disappears after 2017.

    I have a question that MIke in his wisdom may know. Say you have accumulated a largish lump sum (c.40K) under the old system by deferring, then taken tax free, because in the year of taking, your other income does not exceed the income tax allowance. Then after 2017 your partner dies and under the 'old' rules you are entitled to pension credit, savings credit and council tax benefit, will the disregard of capital accrued by SRP deferral still apply after 2017 and will your SRP be uprated to the old pension credit rates or the new flat rate?

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  • MK22
    Love rating 169
    MK22 said

    I certainly worry about ANYTHING the Tories say. After all they destroyed the coal industry saying it was better to import our energy requirements and now we depend on foreigners for most of our energy. They said it was better to privatise everything else and now most of our industries are either owned by foreigners or non-existent. Still at least we can rest easy knowing that Cameron et al are so rich (compared to most of the rest of us) that they won't be affected by any of this, even when it all goes pear shaped.

    Report on 16 January 2013  |  Love thisLove  0 loves
  • coloratura
    Love rating 81
    coloratura said

    This smacks of divide and rule. Why not put all pensioners on the new rate? It must surely save a lot of money in administration if everybody is on the same amount - otherwise why change it at all? I am now of pensionable age but I am still working and have currently put 45 years of work into the country and yet I will not receive the £144 even though I will have worked many years and am still working to help provide for it. It is not so much the difference in money at present (I receive virtually the same amount) but how will it work out in the future? If the people on £144 get a percentage rise, will the rest of us get the same percentage and if we are receiving a lower amount then the percentage of a lower figure will also be lower thus diminishing our pensions even further - and will our pensions be means tested ? It also feels like a slap in the face if all those who have done little or no work will get the new boosted pension whilst the rest of us who have worked for many years will not. Of course those who have done little for it will take it and happily forget the rest of us who have worked. It is human nature but totally unfair. Thus divide and rule and rip-off Britain once again. But as MK22 says David Cameron and the rest of the M.P's won't care as they will be on very nice pensions thank you. It's time we stopped voting for any of them of whichever party. They all look after themselves first, middle and last. It looks as though I might as well join the ranks of those who don't work....you get better thought of for it in this country.

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  • povertypot
    Love rating 5
    povertypot said

    Well it seems to sweeten the pill of having to work 6 years longer than when I set out but wonder: if someone reached retirement age before April 6th 2017 could they defer and then pck up the new rate?

    Report on 17 January 2013  |  Love thisLove  0 loves

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