The DWP has published a consultation on options for simplifying the state pension system for future pensioners.  

The consultation, which closes on 24 June 2011, asks about the most appropriate mechanism for determining future changes to state pension age: either through a formula linked to life expectancy or by increasing state pension age through a review or by a combination.  

It also proposes two broad options for reform of the state pension, intended to help people have certainty about how the amount of their state pension in retirement. Both involve providing a flat-rate weekly pension, currently estimated at around £140 a week, for those with a full 30-year contribution record, but the details differ:

  • Option 1: make S2P flat-rate more quickly. Existing reforms would be accelerated so that S2P becomes flat-rate by 2020 (also when state pension age increases to 66) instead of the 2030s, giving all those with a full 30-year contribution record the same amount of state pension (basic + S2P).
  • Option 2: single-tier flat-rate pension; abolition of S2P and Pension Credit. Under this more radical option, which the Government appears to prefer, a single-tier flat-rate pension would replace the basic state pension, S2P/SERPS and the means-tested Pension Credit. S2P and contracting-out would end for future pensioners (as well as Savings Credit), though there would be a transitional period to take into account the contributions people have made under the current system, meaning that contracting-out would continue in the interim.

Click here for the DWP consultation, A state pension for the 21st century.