- New flat-rate state pension takes effect on Wednesday
- IFS says 61% of retirees will get less in next four years
U.K. Chancellor of the Exchequer George Osborne said the government’s move to simplify state pensions will benefit women and the self-employed especially by giving them greater security to plan their retirements, though some analysts said it will be less generous to retirees in the longer term.
The change to a flat-rate pension from the previous two-tier model, which takes effect Wednesday, will provide retirees with state pensions of 155.65 pounds ($220) a week when they reach retirement after 35 years of contributions.
“The new system means that at last, people will have certainty in what they can expect from the state in old age,” Osborne said in a statement. “These changes will benefit women in particular, with 3 million significantly better off by 2030.”
Osborne is seeking to convince voters his pension reforms are geared to the lower paid as well as the better off, after he was criticized for dropping plans to reduce tax reliefs on private retirement saving that would have hurt higher earners in his March budget. Pollster BMG Research said Tuesday that Osborne’s approval rating had slipped following the budget, taking him significantly below the opposition Labour Party’s finance spokesman, John McDonnell.
The Institute for Fiscal Studies said that while the state-pension reform is “sensible,” 61 percent of retirees in the next four years will receive less than the new flat-pension rate as it is phased in. That’s because many won’t have contributed to the so-called additional state pension over the course of their working lives. Up to now, the additional pension provided extra income on top of a lower basic rate.
“It is also important to be clear that in the longer term, as well as achieving a genuinely simpler system, the new single-tier pension will be less generous, and therefore less costly to the taxpayer, than the system it replaces,” the IFS said in a statement.