* Government proposes single flat-rate state pension
* Payment would be higher than current basic rate
* Britons to work extra five years to qualify
By Tim Castle
LONDON, Jan 14 Britons will have to work longer
to earn a full state pension but will benefit from a higher flat
rate when they retire, the government said on Monday as it
sought to put a lid on the soaring cost of its universal basic
The government will also formally consider at regular
intervals whether to raise its state pension age to allow for
rising life expectancy.
The measures, outlined to parliament, aim to curb
expenditure on basic state pensions, which the government says
it set to hit 8.5 percent of economic output by 2060, from 6.9
The Conservative-led coalition said a simplified pension
scheme, with a flat-rate payment, would provide workers with a
firm foundation for retirement and encourage greater private
saving for old age.
But Britain's largest pensioners' group said the changes
were a "con trick" and would do nothing to help existing
The coalition has already brought forward increases in the
state pension age as health and longevity improve. The threshold
will go from 65 to 66 by 2020, and to 67 by 2028.
Under the proposals, a review into further possible rises in
the state pension age would be held every five years, with the
next earmarked for 2017, after a general election due in 2015.
The government would consolidate a series of different state
pension entitlements into a single flat rate worth 144 pounds
($230) a week.
The basic rate is currently set at 107 pounds a week but can
be boosted by a complex system of allowances depending on a
Ministers plan to abolish additional state pension
contributions, which can produce retirement payments of up to
200 pounds a week, to help pay for the reforms.
"Our simple, single-tier pension will provide a decent,
solid foundation for new pensioners in an otherwise less certain
world, ensuring it pays to save," said Pensions Minister Steve
The switch to a flat rate from 2017 would be financed by
removing the ability of workers to save for a higher state
In addition, Britons would have to work 35 years to qualify
for the new full pension, compared to 30 years now.
The move to a single-tier pension would restrict the
projected cost of state pensions to 8.1 percent of economic
output by 2060, the government said.
It said the new scheme would benefit women who took time out
from work for childcare, the self-employed and low-paid workers,
who all would otherwise have expected a lower basic state
However, around 7 million workers, many in the state
teaching and health sectors, who have opted out of a higher
state pension in return for lower tax contributions will now
face a 1.4 percentage point rise in payroll taxes.
The government said many of these workers would not lose out
as they would be compensated by the higher level of the basic
pension, expected to be worth 160 pounds a week by the time the
new system begins in 2017.
But the opposition Labour party seized on the effective tax
hike and said the government had been "caught trying to sneak
out another raid on the paychecks of hard-working families
already feeling the pinch".
The National Pensioners' Convention (NPC) said the proposals
would do nothing to help existing pensioners and would hit those
yet to retire.
"They are being asked to pay an extra five years' worth of
National Insurance contributions, work longer before they can
retire and end up with less than they can get today," said NPC
general secretary Dot Gibson.
The Institute for Fiscal Studies, an independent think tank,
said the proposals would lead to a cut in state pension
entitlement for most Britons in the long term, but added that
this could encourage greater private saving for retirement.