THE BIGGEST reform of the state pension since it was created more than a century ago will deliver “dignity in retirement,” Chancellor George Osborne has said today.
From this morning, the start of the new tax year, there will be a single tier pension, which, the Treasury said would provide more than £8000 a year or £155.65 a week for people who reached the state pension age after 35 years of paying in or getting credits.
The department insisted the new state pension would, in particular, benefit women reaching pension age over the next decade. In the past, many were unable to build much of the previous earnings-related additional state pension but, from now on, everyone would build up the new state pension in the same way.
It said over 75 per cent of women and over 70 per cent of men would gain in the first 15 years of the new state pension and by 2030 over three million women stood to gain an average of £550 extra per year as a result of the changes.
But analysis from the Institute for Fiscal Studies(IFS) found that fewer than one in five people reaching state pension age over the next four years would get the £155.65. It estimated nearly one in four retirees would get more but most would get less.
Explaining the reasons for the differences, the IFS said some people had already built up an entitlement to more than the full rate under the old pension arrangements and they would see their entitlement protected.
But many people receiving a pension below the full amount would have had periods when they had been "contracted out" of the additional state pension; meaning they paid reduced rates of National Insurance contributions in exchange for reduced pension entitlement. Eight in 10 of those reaching the state pension age over the next four years would have been contracted out at some point during their lives, the think-tank explained.
"It might come as a nasty surprise to many that their state pension income is in fact less than the full 'flat rate' amount of £155.65 per week," said the IFS.
Meantime, Age UK estimated around 70,000 people in their fifties and sixties would miss out entirely on the new state pension between now and 2030.
The new state pension is among a number of reforms to taxes, National Insurance allowances and savings coming into effect today, including Scotland’s new income tax rate.
More than 18 million people will benefit from a tax cut as a new personal savings allowance comes into force which takes 92 per cent of savers – nearly 17m people – out of savings tax altogether.
In the biggest savings shake-up for a generation, from today most UK adults will be able to earn up to £1,000 interest a year on their savings without paying tax on it.
The income tax-free personal allowance increases from £10,600 to £11,000, giving an £80 tax cut to a typical taxpayer, cutting income tax for over 30 million taxpayers and taking 680,000 out of paying income tax altogether, including 60,000 in Scotland. The changes will see more than 2.5m Scots pay less income tax.
“Today’s reform of the state pension is the most significant since its inception,” declared Mr Osborne. “The new system means that, at last, people will have certainty in what they can expect from the state in old age and for many women and the self-employed, it will be more generous.”
The Chancellor said that because the UK Government was determined to back the next generation, from today the jobs tax on young apprentices would be abolished altogether.
He added: “These changes you see today are what a modern, compassionate Conservative government is all about. We’re backing hard work and aspiration, allowing people to keep more of their own money, supporting savers and giving the next generation a step up.”
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