A new flat-rate pension is expected to come into place from April 2017.
The new, single-tier pension would be £144 per week, with anyone who had paid a minimum of 35 years of national insurance contributions to be eligible to receive the benefit. It is expected that it would rise each year in line with prices, earnings or 2.5%, whichever is higher.
Pensions minister Steve Webb said today he wanted the government to provide a "single, simple, decent state pension".
The Pensions Policy Institute today welcomed the announcement by Webb, saying the current pension system was too complex. At the moment individuals can qualify for a basic state pension of £107.45 per week and may be eligible for top-up payments, which could take the weekly income to £142.70 or £160.
The flat-rate pension will be paid to new pensioners reaching state pension age from 6 April 2017.
Keep it simple
Head of retirement planning at AXA, Andy Zanelli, says the new flat rate should be "seen as a fantastic benefit to many" and hoped it would send a much needed message to the public that "pensions should be simple to understand and something they should be actively engaged with".
Tom McPhail, head of pensions research at Hargreaves Lansdown, agrees that the reform was "vital" and says it "lays the foundation to rebuild the UK's retirement savings". He adds: "It will simplify the state pension for millions of today's workers, allowing them to plan their retirement with more certainty."
To receive the same annuity income of £144 (£7,488 a year), McPhail points out a 65-year-old would need a pension pot of more than £200,000.
This article was written for our sister website Money Observer