Women are ‘major winners’ in reformed system at expense of wealthier workers, increasing pension by average of £40 a week
Mothers and carers who choose to stay at home instead of going out to work will receive a full state pension for the first time under an overhaul of the UK’s retirement system.
Under the reforms, mothers and carers who retire from 2015 will be treated as if they had worked throughout their lives, giving them a flat-rate payment worth at least £140 a week and leaving them £2,000 better off a year, on average, the work and pensions secretary, Iain Duncan Smith, announced.
Currently, people who do not work for a full 30 years receive a reduced pension entitlement for each year out of employment.
Duncan Smith told the Telegraph that the state second pension will be scrapped, a measure that will hit wealthier workers. He defended the changes, saying they would leave most workers better off and provide a far simpler system than the “chaotic” one currently in place.
“Nobody understands how it works,” he said. “It acts as a major disincentive to save. It penalises women, just for doing the most important thing in the world, which is to make sure that their families [are cared for].”
The government will publish the full details of the pension reform in the coming weeks.
Duncan Smith said: “This is hugely beneficial for women who have a broken record of employment. The really critical point is right now they don’t get recognised in the system. But under this system they could build up full points.
“So caring in itself will carry, for the first time ever, a value, and this will be of major benefit to women. Women will be the biggest single beneficiaries from this programme, massively.”
The overall cost of the state pension will not rise, meaning other changes will be implemented to fund the reform, said a Department for Work and Pensions spokeswoman.
“Our plans will radically simplify the state pension system and set it above the level of the means-test, providing a fair and sustainable foundation for pension saving for people of working age,” she added.
At present, workers can choose to either opt in or out of the state second pension. If they opt in and make national insurance contributions for 30 years, they receive the basic pension of £107.45 as well as their second pension, which can be worth more than £100 a week.
Those with company or private pensions can choose to opt out, meaning that they and their employers gain a discount on national insurance. This saved money is currently invested in their own pension schemes. The DWP spokeswoman confirmed that this system would end.
Everyone will receive a higher pension of £140 a week, but people will not be able to opt out, meaning wealthier employees could lose thousands of pounds each year.