The government has published its long-awaited white paper on state pension reform outlining detailed plans for the implementation of a £144-a-week flat-rate state pension.
The paper confirmed measures requiring a longer record of national insurance contributions (NICs) and measures to soften the blow for higher earners affected by the abolition of contracting out from the secondary state pension.
The paper, which has twice been delayed, confirmed a hike in the number of years of NICs required to qualify for the full state pension from 30 to 35, and introduces a minimum of 10 years of NICs to qualify for any state pension.
The £144 flat rate state pension will be uprated by the ‘triple lock’ meaning it will go up by the higher of earnings, prices, or 2.5%.
State pension entitlements over £144-a-week will go up in line with the Consumer Prices Index.
The government said the flat rate state pension will be implemented in 2017, at the earliest.
The paper has set out a series of measures to factor in the closure of the secondary state pension and the abolition of contracting out.
Contracted out employees will be fully bought back into the state system and start to pay full NICs, an increase of 1.4% of relevant earnings.
However, the government said that 90% of those who reach state pension age in the first 20 years after the reforms have been implemented will gain enough extra state pension in retirement to offset the increased NICs they will pay over the rest of their working life.
Where an individual has previously contracted out, a deduction will be applied to reflect the fact they paid lower NICs.
Pensions minister Steve Webb (pictured) told the House of Commons: ‘No longer will the state run its own earnings related pensions scheme. There will be no further changes to state pension age in this parliament. It will be reviewed every five years, each review will be carried out by the Government Actuary's Department.’
‘National Insurance payments that would have led to entitlements will be recognised. If in 2018 you would be entitled to £160 then under a single tier you will still get that. Those workers will pay full NI but will also be entitled to single tier. So for the vast majority of people the amount more of NI they have to pay will be offset by the single tier.’