With the introduction of the new state pension coming ever closer, the Minister of State for Pensions, Steven Webb, has promised that it will provide support to those who conventionally struggle to cope with the current two tier system, namely low-income pensioners and women.
Focusing on the need to ëbuild a strong financial foundation for their retirementí, Webb promised the new system would be ësimpler to understandí so that current pension holders and those nearing eligibility will be properly informed about their pensioner rights.
Coming into effect on April 6 2016, the rate for the new state pension will be raised above the current level, paying out roughly £145 a week to anyone with a credible National Insurance history. The age at which one becomes eligible is flexible in accordance with growing life expectancy; it is set to rise to 66 in 2020, and to 67 by 2028.
Current system too complex
The UKís current two-tier system has been criticised for its convoluted structure, with many savers choosing to move onto other investment mediums, such as ISAs, due to their mistrust in the pension system. Criticism has been particularly focussed on the high levels of mean testing and the glaring inequalities prevalent within the system, for example the marginalisation of women.
Complexities include dated rules for divorcees and widowers, bearing similarities to 1940s modes of thought whereby a man would receive a pension, however a women would merely need as man to subsist. The State second pension has been pinpointed for its preposterously complex layout, with the notion of ëcontracting outí into a workplace pension scheme especially lambasted. However, the most staggering thing is that this two-tier system does not always afford pensioners with enough to live contentedly. As such, added means-testing in the form of pensions credit act as a ëtop-upí for these unfortunates. Yet all this measure did was further convolute a system confounded by its own intricacy.
Pensions minister Steve Webb said: ‘The new state pension will replace the current, complex mix of basic and additional state pension which successive governments have tinkered with so much over the decades.
‘It will give people clarity and confidence about what income they will get from the state in their retirement. In addition, the State Pension reforms will benefit those who have historically done poorly under the current 2-tier system.
‘I want to see us build a fairer society within a stronger economy. That means ensuring people have a simple, better State Pension in retirement which protects them from poverty and provides a solid foundation for them to save for their future.’
Women to benefit the most from system overhaul
Women are set to gain the most from the new Pension system, as their previously overlooked child-rearing efforts during time taken out of work are meaningfully acknowledged.
An estimated 650,000 women will collect an extra £400 a year in weekly payments in the first 10 years following the introduction of the new state pension, as the method in which National Insurance contributions are viewed is reshaped to reduce inequality. Mr Webb said: “At long last, women will be treated as adults in their own right when it comes to the pension system, rather than getting a reduced pension based on their husband’s contributions. “In the future, all years spent contributing to society, whether through paid work or caring responsibilities, will be of equal value. “The new state pension will be a much fairer system and is designed to help groups which have traditionally been disadvantaged ñ including women and the low-paid ñ to build a strong financial foundation for their retirement. “We are also helping more women to save for later life. Workers are now being automatically enrolled into workplace pensions ñ and millions of women will be saving for the first time as a result. “The new state pension will be a clear improvement on the current system, removing layers of complexities. It’s part of our work to abolish outdated inequalities and create a fairer society.” The governmentís goals are ostensible; to instil a new generation of savers with confidence in investing in government schemes, focussing on better provision for women, whilst convincing them that this investment is the most prudent course of action to attain financial security in their old age.