UK pensions changes explained

PLANS for a new flat-rate pension scheme in the UK announced in today’s Queen’s Speech will withdraw the right for overseas spouses to get pensions based on their partner’s National Insurance contributions – but will not affect the 220,000 overseas residents who already receive such state pensions.

Pensions minister Steve Webb said reforms in the Pensions Bill would mean that from 2016 only an individual’s own NI contributions would count towards state pension entitlement.

It is intended to save hundreds of millions on the pensions bill and he said the present 220,000 claimants cost around £410million a year – with the number of claimants growing.

The present system recognises that historically one married partner did not work, but looked after the home. So spouses can use their partner’s NI contributions to claim a “married person’s allowance” of up to £66 a week – even if they have not paid into the UK system themselves. Webb said this would end for future claimants.

He said in news reports that more than half the 220,000 pensions paid outside Britain were paid to people who had "never put a penny" into the UK system. He added that few people in the UK would be affected “because if you've spent your time here you build up a pension yourself - but they are affecting more and more people outside the UK who have never put anything into the system”.

Included in the Pensions Bill to be published tomorrow are plans for a single-tier pension – said to be worth £144 a week at today's prices – for anyone reaching retirement age after April 2016. The full pension will only be paid to those who have made NI contributions for at least 35 years.

A reduced pension of £4.11 will be paid for every year worked above a threshold of seven to 10 years, but anyone without these years of NI contributions will no longer be entitled to a state pension.