Flat-rate state pension to pay £140.

24/03/2011

The state pension system is to be replaced by a simplified version that uses a flat-rate to pay about £140 per week.

Chancellor George Osborne confirmed the Government's plans in his Budget, saying the current set-up was "unbelievably complex". He said people are not sure how much their state pension will be and whether any savings they have will see them lose means-tested benefits.

Under the new scheme, everyone will get the same level of support and that will more than what pensioners are given now via a basic state pension and the pension-credit, which is means-tested.

The flat-rate set-up will not be more expensive that the current system and will still be funded by contributions. The new pension system will take years to come into effect, meaning people who are already pensioners will not benefit.

National Association of Pension Funds chief executive Joanne Segars said: "This reform provides a clearer foundation for saving for old age. For the first time in a generation, people will know that it pays to save."

Another Budget measure that will help most taxpayers is a £630 hike in the personal tax allowance - the amount people can earn tax-free. It will go up to £8,105, which is a cash-benefit of £126 a year.

Added to the rise for this year, it means basic-rate taxpayers keep an extra £326 a year and 1.1 million low-paid workers will not pay any tax, Mr Osborne said.

Copyright Press Association 2011