Flat rate pension laws on the way, confirms minsiter

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Pensions minister Steve Webb has promised new laws to even out the differences between state pension payouts that can differ by more than £200 a week depending on a pensioner’s finances.

Webb says the discrepancies are unfair and state pension calculation would even baffle Einstein – but he stopped short of offering hope to expats stuck with pensions that are not index-linked.

The state pension comprises a basic state  pension plus several means-tested add-ons to boost the payment.

This system is due to be scrapped in favour of a flat-rate state pension for new pensioners that will have no means-testing. Current estimates expect the payment to be around £140 a week and index linked so payouts rise with the cost of living.

A White Paper with the full details is expected later in the year.

Expats are biggest state pension losers

However, the rules are not expected to change for expats drawing state pensions overseas.

Two rules apply to expat state pensions – those living in the European Union and some other countries are paid index-linked pensions, while those living elsewhere have their pensions pegged at the rate paid on the date they retire.

Despite a campaign ending up with a hearing in the European Courts of Justice, expat pensioners lost their case, although they are still carrying on the fight to win parity.

According to the Department of Work and Pensions,  the state pension can vary from £7 a week to £230 a week, with about 130,000 people getting £7 or less a week and the same number of people picking up £230 or more a week.

The figures include pensions paid to expats.

State pensions are too complicated

The minister also argues state pension calculations are so complicated as successive governments have added extra rules over past decades without reforming the underlying legislation. The result, he says is many people cannot work out what they should be paid and cannot properly budget.

“The range of state pension payouts  at the moment is simply staggering. The current system is so complex and would  baffle even Einstein. Worse, if people have no idea what they will get, they  can’t make sure they have enough savings for their retirement,” said Webb.

“We can’t go on playing roulette  with pensions. A flat-rate single-tier state pension will restore simplicity and  give people certainty instead of chance.  And it will provide a sure foundation for further saving.”

Women are paid less

Pension critic Dr Ros Altmann, director-general of Saga, the  financial services provider for the over 50s, claims that although state pension payments vary widely, women are often paid less than men.

“The UK state pension system is the by far the most complex in the world. Almost no one understands it and it is not fit for purpose,” she said.

“It fails to provide an adequate pension income for millions of Britain’s pensioners, particular women and low earners. Radical reform long overdue – at the moment the state pension system relies far too much on mass means-testing which particularly penalises those who have tried to save for their retirement. It is vital that the state pension system makes it safe to save.”

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