Warning of ‘con trick’ as coalition’s new pension plan unveiled

Plans for a radical shake-up of state pensions will be announced by the Government today amid warnings that it will be little more than a “con trick” and could affect a hard-fought deal on public sector pensions.

The coalition’s proposals include a single flat rate state pension, equivalent to around £144 in today’s money, to be introduced for new pensioners from 2017 in a bid to simplify the system.

Ministers said the reform will create a simple flat rate pension set above the means test (currently £142.70) and based on 35 years of National Insurance contributions. They said it will “hugely benefit” women, low-earners and the self-employed, who under existing rules find it almost impossible to earn a full state pension.

Around six million workers will face higher national insurance payments in future as the practice of “contracting out” the state second pension to employers is ended.

Those affected are expected to include more than a million private sector staff enrolled in final salary schemes, and an estimated five million public sector workers.

The GMB union said there could be “very serious consequences” which could affect an agreement on public sector pensions, while the National Pensioners Convention described today’s White Paper as little more than a “con trick” for future generations, by offering them less than they get now, asking them to pay more and work longer before they can get it back.

But ministers will argue that by replacing today’s complex system of add-ons and means-testing the single tier will provide certainty to people about what they will get from the state and provide a better platform for them to save for their retirement.

Secretary of State for Work and Pensions Iain Duncan Smith said: “This reform is good news for women who for too long have been effectively punished by the current system.

“The single tier will mean that more women can get a full state pension in their own right, and stop this shameful situation where they are let down by the system when it comes to retirement because they have taken time out to care for their family.”