The U.K. will offer those retiring from 2017 a flat-rate pension, removing wealth tests and ensuring that women and the self-employed are paid the same as full-time male workers.
Pensioners currently receive a basic state pension of about 108 pounds ($174) a week, which can be topped up to about 143 pounds with welfare payments for those with low savings. Higher earners can increase what they receive through the State Second Pension.
Under plans to be announced in Parliament in London today, future retirees will receive around 144 pounds a week in today’s money. The removal of the wealth test means there will no longer be a disincentive to saving for lower earners. Easier qualification means those with gaps in their tax records, such as women who’ve taken time off to raise families, will still receive the same benefit.
“The current system is too complicated, it discourages savings,” Prime Minister David Cameron told ITV. The new plan “helps a lot of the low paid, and women, who otherwise wouldn’t get full pensions.”
The details of how taxes will be handled under the new system may affect the U.K.’s remaining “defined benefit” private pension plans, where companies pay a fixed amount based on someone’s earnings.
Paul Johnson, director of the Institute for Fiscal Studies, said that over decades, the new plan would save the government money. “In the long run, this is removing from most people the total state pension they can receive,” he told BBC Radio 4. “Anyone born after 1980 or so will end up with a lower pension than they may have expected.”
Ros Altmann director-general of Saga Group, which represents pensioners, welcomed the announcement for the certainty it will provide. “The state will give you a certain amount, and if you want more than that you will have to save or work longer,” she told the BBC.