Pension change - winners and losers

By Paul Lewis , Wednesday 6 March 2013

The state pension reforms are designed to simplify the system, but what will they mean for you?
The new state pension will cost no more than the present systemThe new state pension will cost no more than the present system

The state pension will be simpler and more certain under Government plans – something that Saga has advocated for many years. A lot of clutter will be swept away, leaving a straightforward, single-tier state pension of £144 a week at today’s prices. It might have risen to £155 or more when the scheme starts.

Government figures are based on an assumption that the new state pension will start on April 6, 2017. It will apply to everyone who reaches state pension age from that date, which would be men born on April 6, 1952 or later and women born on July 6, 1953 or later. Everyone who is older than that will get the current pension under the current rules.

Women born between April 6, 1952 and July 5, 1953 will be denied the new pension. Many have already seen their pension age raised and feel very hard done by.

No extra cost
The new state pension will cost no more than the present system. So half a dozen existing pensions will vanish – basic retirement pension; additional pension called SERPS and state second pension (S2P); graduated retirement benefit from the Sixties; Category D pensions paid to people aged 80 or over with no National Insurance record; pensions paid to married women on their husband’s contributions; and the age addition of 25p a week paid at the age of 80. In their place will be a state pension paid at one rate to everyone of pensionable age with at least 35 years’ NI contributions.

At the moment, you get a full pension of £107.45 if you have 30 years’ NI contributions – that was recently reduced from 44 for men and 39 for women. From 2017, people with fewer than 35 years’ contributions will get less than £144. For example, 25 years will earn 25/35ths of the full amount. People who’ve paid NI for fewer than 10 years will probably get nothing.

The pension will be paid to individuals on the basis of their own NI contributions. Therefore a couple who both have 35 years’ contributions will get £144 each. A spouse or civil partner will not be able to claim a pension based on their partner’s contributions. In future that could leave some people with no pension at all. To get the contributions, you will have to work and be paid above the lower earnings limit (currently £107 a week), or get them credited. Credits are given to people who are carers, parents, sick, on maternity/paternity leave, or looking for work. Conditions differ, however, and may not apply in all circumstances. Those rules will continue.

The Government predicts that very few people who have spent their adult life in the UK will not qualify for a pension and more than 80% will get a full one.

The Government also plans to change the means-tested pension credit top-up. In future, there will be no means-tested help for those with an income above the full state pension. The details have not yet been published, but we do know that the part of pension credit called ‘savings credit’ will be scrapped. That will mean much less help for some people with an income at or above £144 a week than they get at present. These changes won’t affect people who reach pension age before the new scheme begins. However, the Government is already reducing pension credits paid to those with an income above about £143 a week (single) or £217 (couple).

Win some… lose some…
The winners under the new system will be those who now qualify for a state pension that is less than £144. That will include many self-employed people who do not pay into a state second pension and those on low incomes who get very little additional pension. NI contributions for self-employed people may be changed to bring them in line with those paid by employees.

However, many people are already entitled to a bigger state pension than the new single-tier £144 a week. If they have SERPS, S2P and a graduated pension of more than £36.35, then they would be better off under the old system. The average pension paid to a man who reached pension age in 2011 was £145 from basic pension and SERPS.

A complex system will ensure you do not get a lower state pension than you would under the current rules, while allowing people to build on their current pension to get the full single-tier pension.

How it will work
At the date of change, everyone will have their entitlement assessed under the current rules – entitlement to basic pension with 30 years’ contributions and any additional pension. That entitlement will be their ‘foundation amount’. If that is more than £144, then the extra will be called their ‘protected payment’.

Each year, the basic element up to £144 a week will rise in line with the state pension and the protected payment in line with prices. When an individual reaches pension age, they will get the uprated foundation amount. This mechanism is intended to ensure that people will be no worse off under the new scheme. People who already have 30 to 34 years’ contributions and were expecting a full pension under the old system will still get more under the new scheme – 30/35ths of the new pension, which would be about £123. Anyone will be able to get extra contributions if they work, and will also be able to buy contributions back to 2006-07. Each year will bring a pension of more than £4 a week index-linked for life, so it will be well worth doing.

Similar rules will protect people who would ‘inherit’ SERPS/S2P when their spouse dies. No inheritance of state pension on death or divorce will be possible under the new system, but rights earned at the date of change will be preserved. And a wife (or other spouse or partner) who would get a dependant’s pension will have that entitlement preserved.

More than six million people who pay into a workplace pension that is related to their final salary will face a double blow. First, their contributions will rise from the date of change by 1.4% of their pay – a maximum increase of around £500 a year. Second, when they reach pension age, their preserved foundation amount will be reduced, roughly by the SERPS/S2P they would have got. However, they will still be able to earn the full £144 if they pay enough extra years of NI contributions.

Existing rules on paying the state pension abroad will remain. It will be uprated each year in the EU and the 20 or so countries where there is an agreement to do so.

Everywhere else it will be frozen at the level it was first paid abroad.

* Read Paul Lewis's money articles every month in Saga Magazine.

The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.


  • £50 notes

    Have you topped up your ISA yet?

    Savers have £11,280 to invest in an ISA before midnight on April 5 - but millions will fail to use this valuable tax break.

    Read on

  • Bank note

    Can you claim Disability Living Allowance?

    Could you, or someone you know, be eligible for Disability Living Allowance? If so, claim it fast as time is running out. Saga Magazine’s money expert Paul Lewis tells you how...

    Read on

  • Annuity

    Annuities Service

    Up to 16% more retirement income through the Saga Annuity Service provided by Legal & General.


  • Equity release

    Equity release

    A way to release tax-free cash from your home, to spend on whatever you choose.


  • ISAs thumbnail

    ISA saver

    Unlimited easy access to your funds, with an attractive, variable interest rate of 1.40% tax free/AER including a fixed bonus of 0.90% payable for the first 18 months.


  • Web Savings thumbnail

    Fixed rate savings account

    For simple lump sum deposits designed for those looking for an attractive fixed rate.


  • Share dealing

    Stocks and shares ISA

    By holding a stocks and shares ISA you can benefit from the Government’s annual ISA allowance.


  • Sharon B

    Posted: Saturday 01 February 2014

    I am a woman born in 1954. I worked all my life believing I would get my state pension at 60. Now I will not get it until almost 66. I did not have time to make any provision for this, it all happened too fast. I do qualify for the new £144 pension but understand I will lose out on this too as I was once contracted out of SERPS. Double whammy. I will sign any petition going regarding this unfairness to a small group of women.

  • Carl fenn

    Posted: Monday 27 January 2014

    Under the old system I could put in a claim for PC in just five and a half years time now not until I'm 66, probabaly be dead by then the Tories are just great, cut every bodies pensions, and today again openeing the door on immigration.The way this pension
    bill was drfated is a disgrace and totally injust.

  • Sheila Bergeson

    Posted: Saturday 30 November 2013

    Born june18 1953, and worked all my life. I feel it so unfair that I will loose out. Can anyone tell me why someone 1 month younger than me, will get £30 a wk more.

    I do believe that all this financial mess was caused by an incompetent Labour Government who have got away with it letting the Tories carry the can

  • Dawn

    Posted: Wednesday 13 November 2013

    Stupidly I believed raising my 3 children was very important. Child care for 3 would have wiped out my pay. I wanted to be there when they were poorly and when they came home from school. I never took a penny from the was a voice I made because I believed in family. I am so frightened about my old age! I am now 57 and do not have enough years to make up for what the gov is proposing and do not have any spare money after paying the utility bils NOW never mind about when I' m 60.

  • colin osullivan

    Posted: Monday 11 November 2013 wife will be 60,can she retire when she is 62 and claim full state pension,as i am 8 years older.

  • Brenda cox

    Posted: Wednesday 09 October 2013

    I get a uk pension and still pay uk tax but recently lost my husband and moved
    To australia and now my pension has been capped. I can understand it if
    You don't pay uk tax but I think it is outrageous that the uk government is taking
    My tax contributions and capping my pension which my husband and I paid
    All our taxes and NI insurances for 30 years or more. Can someone tell me how
    this can be

  • Elizabeth Clarkson

    Posted: Wednesday 11 September 2013

    I am very disappointed too because I was born in September 1953 and I also started work at 17 years old and never had any time off. Yet I will have to work extra years before I can claim my state pension. I would definitely sign a petition.

  • Sarah Dickson

    Posted: Tuesday 06 August 2013

    Left school 1970 aged 15 worked physically demanding jobs ever since apart from 4 years when I was raising my daughter paid full contributions looked forward to less work age 60 nowfind I have to slog on 6 more years which doing what I do will pretty much guarantee I may be a physical wreck or possibly dead which means my pension will disappear

  • kathy

    Posted: Monday 29 July 2013

    I was born in1949 how will that effect my pension and I will be glad to sign a petition

  • kathy

    Posted: Monday 29 July 2013

    I was born in1949 how will that effect my pension and I will be glad to sign a petition

  • valerie watson

    Posted: Friday 12 July 2013

    I am a women born Nov 1952, have had 2 increase's to the retirement age, so all in all ive 2.9 years added on, how is this right, when it was STATED that we would not have more than 1 year added on......Men unfortunately wa always 5 years more. (Not fair( I agree but the women have had it the worst.... Without even time to think about it, maybe it should have started for those born in 1960 giving everyone an idea of how they would be robbed.

  • Barry Kerr

    Posted: Tuesday 04 June 2013

    I am 11 years older than my wife who was born in June 1954. Instead of being able to draw a pension at age 60 she has now to work until age 66 and 2 months before entitlement. Our retirement plans have to radically change to bridge the financial gap left by a government decision that has in effect stolen £35 K + out of our budget over the next 6 years. Bring on that petition!

  • Barbara Lawrence

    Posted: Wednesday 29 May 2013

    I'm a woman born in 1952, I wrote to my MP and she tells me I am not now adversely affected by these changes. Anne Begg chair of the Parliamentary Cttee reviewing the changes says people affected by the transitional arrangements urgently need specific information, but I can't find any detailed information on the DWP site or anywhere else that confirms my position. Can Saga say what if any recent changes have been made to these plans.

  • Vicky Peattie

    Posted: Sunday 19 May 2013

    Outraged at new government proposal to cut out pension rights for women who in good faith were expecting one based on husband's contributions. Those of us nearing 60 have no chance of anything but pension poverty and no chance of making up 35 years NI contributions. Another nail in the coffin for those who were stayathome mothers. Is nobody going to campaign on this one, or get the government ministers sitting in their ivory towers to come back to the real world?

  • Jim

    Posted: Wednesday 15 May 2013

    The governements stated policy is to make the "state pension system simpler and fairer" The current complex set of rules will be replaced by a totally arbitrary rule based on accident of birth, so ensuring that some people who have paid 44 years of NI contributions will receive less than some people who have paid 35 years NI contributions. Fairness appears to mean that older pensioners should receive less because younger people on average will draw the increased pension for longer.

  • Patricia C

    Posted: Friday 10 May 2013

    As one of the women who loses out by year of birth and expected to have 39 years of pension- I see ALL the unfairnesses here perpetrated against women, and I think it should be taken to the European Court of Human Rights. It is BLATANT discrimination!

  • barbara Harper

    Posted: Wednesday 08 May 2013

    I am one of those stay at home mothers and am now really confused and frightened about what will happen to me after 2020 when i'm due to reach state pension age. I am 58 years old and have a long standing back problem which has prevented me from working. However, currently my husband who is 67 receives married allowance and so we manage. But now it looks as if that is finishing in 2016 and even if i find a job I can manage i will still not have enough credits to quailfy for my own state pension

  • Peter EWEN

    Posted: Monday 06 May 2013

    Double blow for stay at home mother. Under the current pension rules a wife who stays at home to care for her family receives a pension based on the husbands national insurance contributions, but only when he reaches pensionable age. She does however inherit those rights if her husband dies after retirement age. Under the new rules based on an individuals contributions, she would appear to receive nothing. So much for the values of family life.

  • Denise Sanderson

    Posted: Friday 12 April 2013

    It is scary how fast they're rushing through this bill. With birth date of Feb 1953 I'm missing out too and according to my maths it's by £20 per week if I live 'til I'm 90! It's a relatively small number of women that are affected so I do hope the government listens and stops discriminating against us. After all, it is the 21st century!

  • Katherine Worsfold

    Posted: Friday 12 April 2013

    I was born March 1953 and will also lose out. If I'd been born 2 weeks later or a man, I would get £30 more a week for the rest of my life! If I'd been born 2 years earlier I would have drawn my pension at 60 which would have compensated to an extent. 350,000 of us are caught in this trap imposed on us by government. I will sign a petition.

  • < 1 2  >


Type your comment here

 characters remaining.

Saga Magazine

For more fascinating stories and insightful articles, why not try Saga Magazine for just £1 for 3 issues.

Saga Magazine e-newsletter

Sign up to our free newsletter today

Subscribe to our weekly newsletter for all the latest recipes, gardening tips, prize draws, interviews and more delivered to your inbox every Friday.

Fixed rate savings

  • Earn 2.00% gross / AER fixed with our 3 Year Fixed Rate Savings Account on balances of £1+
  • Withdrawal charges apply.

Financial Planning

Financial Planning

The Saga Financial Planning Service provided by my wealth, offers you a simple and straightforward way of ensuring your savings and investments are working hard to achieve your financial objectives.