A government white paper published this week reveals that from 2017, working people will need 35 full years of National Insurance contributions in order to qualify for the full state pension compared with 30 years today.
The pension age will also rise linked to longevity, to 66 in 2020, 67 by 2028, and onward from there. This will mean that employees now in their 20s will probably have to work to age 70 before they get their state pension.
The current system of pension credits will be abolished, thus ending a system which was seen as discriminating against savers. Pension credits are a top-up to the basic pension, aimed to assist those who would receive a low retirement income. However, as pension credits are means-tested, you stand to get less or none at all if you have built up considerable savings alongside your pension. This has been seen as penalising those who saved, or even discouraging people from saving, as their savings would cost them part or all of their pension credits.
The pension credits system will go in 2017 and be replaced by a flat-rate pension of £144 per week, which will rise each year in step with earnings, prices, or 2.5%, whichever is the greater.
Here are the main points of the pensions review as outlined in the White Paper:
New flat rate state pension of £144 in today’s prices from April 2017 compared with £108 today
Minimum number of years of National Insurance Contributions or NI credits to get the full basic state pension will rise from 30 to 35
Those taking time out to care for children or parents will gain National Insurance credits
Minimum number of years of NI Contributions or NI credits to qualify for any basic state pension will rise from 1 to 10
Contracting out will be abolished
Pension age will rise linked to longevity: to 66 in 2020, to 67 by 2028, and upward from there