The winners and losers in the UK pension reforms

Published by on 05 May 2011.
Last updated on 01 February 2012

Pensions piggy bank

The UK pensions system is set to undergo a massive reform, which will see the self-employed better off but many existing pensioners losing out.

Iain Duncan Smith, the secretary of state for work and pensions, confirmed plans to introduce a weekly flat-rate state pension of £155.

But the changes will not apply to current pensioners and Chancellor George Osborne admits it would take "years to come into effect".

At present anyone over the age of 65 is entitled to a basic pension of £102.15 a week.

Added to this is either the state second pension (S2P) based on national insurance contributions or the means-tested element for lower earners, known as pension credit, which boosts pensions up to £132.60 a week for a single person and £202.40 for a couple.


Mothers who have taken time off to raise children, low earners and the self-employed will benefit most from the changes.

Under the current system, national insurance contributions fund the S2P, which is paid on top of the basic pension. At the moment, many women who take time off work to bring up children don't build up enough NI contributions to qualify for the full S2P. The unemployed are also automatically exempt.

The new system will eradicate the S2P, with everyone receiving the same rate, regardless of contributions. 


The big losers will be existing pensioners and anyone about to retire within the next few years, as they won't qualify for the flat rate.

Pensions expert Ros Altmann, director general of Saga, says: "None of today's pensioners will get less than they do now, but they won't receive the new benefits. This is a big drawback."

Your views on the matter

Moneywise readers aired their views on the government's reform to pensions on

Jennifer Turnbull says:

"This is good news for pensioners, but the fact that it will only be for new pensioners is really unfair to the many who are receiving their pension already or are due to receive it in the next few years. It will mean some pensioners receiving quite a bit more than others."

John Deakin says:

"It's disgusting, disgraceful, despicable, deplorable, reprehensible, immoral and should be illegal that the government is even considering not giving the new state pension to current pensioners.

"How can they justify not giving the increase to old people who have worked all of their lives, paid their taxes and insurance contributions and in many cases fought for their country?"

Val Jean says:

"I was relieved to hear that the new flat rate would not be applied to all existing pensioners at the time of introduction. Of course, I understand the frustration of those who miss out and remain on a lower pension, and I would support lifting them to the new rate.

"But some of us are presently on substantially higher-rate state pensions and had feared seeing all this swept away with a blanket change."

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