Budget 2012: State pension to be simplified
The chancellor has pledged to combine the two state pensions into one simplified pension, as well as increasing the state pension age automatically in line with rises in longevity.
In the 2012 Budget, as part of wider plans to simplify the UK's complicated tax system, George Osborne announced that the second state pension will be scrapped and a new single tier pension will be launched for future pensioners.
It is estimated that it will be about £140 a week. The full basic state pension is currently £102.15 a week, rising to £107.45 next month.
In his speech, Osborne joked about the complexity of the second state pension: "Such is the complexity of this means tested system, only someone like our pensions minister can work out exactly what someone's entitled to – and what they need to save.
"So I can confirm that we will introduce a new single tier pension for future pensioners, set above the means test."
The new pension will be based on contributions and will cost no more than the current system. The government will publish further details in the next few months.
"A single, generous, basic state pension for those who have worked and saved hard all their lives," the chancellor declared.
He also announced that to tackle the long-term challenges of an ageing population, there will be an automatic review of further increases to the state pension age to ensure it keeps pace with increases in longevity. Further details on this will be published this summer.
Baroness Greengross, chief executive of the International Longevity Centre-UK (ILC-UK), welcomes the automatic link: "The government is right to consider how the state pension age needs to increase in line with longevity. It is simply not sustainable for the state to adequately support us for the increasing number of years we are spending in retirement."
She adds: "Whilst many of us can expect to live 15 or 20 years after state pension age, parts of the country see much lower life expectancy. Further increases in state pension age must go alongside initiatives to tackle inequalities in health and healthy life expectancy."
This article was written for our sister website Money Observer
A test to assess the financial “means” or resources (income, savings, property) of a person to determine whether or not that person is eligible for financial assistance (such as state benefits, legal aid, free prescriptions, etc) from the government. A means test can also be used by the courts to determine whether or not a person is eligible to enter bankruptcy proceedings or if they have the means to repay their debts to their creditors.