Millions face tax hike under new pension plans

Proposed flat rate state pension of £155 per week for all could mean higher national insurance contributions, an effective tax rise of 1.4p in the pound

Millions of Britons could pay more tax under new pension plans expected to be proposed by the government, it has emerged.

The flat rate state pension will introduce a single pension of up to £155 per week for all pensioners regardless of the scale of their lifetime national insurance contributions. But, according to the Daily Telegraph, millions will have to contribute more in national insurance to pay for it, which will amount to an effective tax rise of 1.4 pence in the pound.

Those affected include 1.4 million workers in the private sector who are enrolled in final salary schemes and five million in the public sector who have “contracted out” of the state second pension and currently pay a lower rate of national insurance.

The new pension would remove the ability to “contract out”.

While some face increased contributions, many will receive a higher state pension, particularly part-time workers and people who have stopped working to raise children during their career.

Tom McPhail of Hargreaves Lansdowne told the Telegraph many workers would do better out of the new system, despite some having to pay more national insurance.

“We will ultimately move to a much simpler system – it’ll be a more even system, fairer, everybody will get more closely aligned benefits, so the long-term outcome will be much better for everybody,” he said.

“But we have a very complex system at the moment, so to get from here to there is going to require quite a lot of recalculations and adjustment, it’ll be a lot of work, and there’ll be some winners and losers from all of that.”

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