Presenting his Budget statement, Chancellor George Osborne said: "Over time we will simplify the tax system for pensioners by doing away with the complexity of the additional age-related allowances for anyone reaching the age of 65 on or after 6 April 2013 and I will freeze the cash value of the allowance for existing pensioners until it aligns with the personal allowance.
"We want to simplify the Basic State Pension and its interaction with the second state pension.?? I pay tribute to the work my HF the Pensions Minister has done on this.?? Such is the complexity of this means-tested system, only someone like our Pensions Minister can work out exactly what someone is entitled to – and what they need to save.
"So I can confirm that we will introduce a new single tier pension for future pensioners, set above the means test.?This is currently estimated at around £140. ?It will be based on contributions.? And it will cost no more than the current system in any year.?? We will bring forward further details later this spring."
Robin Hames, head of technical, marketing and research at Bluefin, said: "The chancellor George Osborne's decision to introduce a single flat-rate state pension is welcome news for people and the companies they work for.
"The complexities of the upcoming automatic enrolment process meant that alongside the existing state pension setup, some employees enrolling into a workplace pension scheme would actually have found themselves penalised financially when they reached retirement – a wholly unattractive prospect. This new flat-rate state pension, once implemented, will eliminate that scenario and make pension planning much simpler.
"But with the implementation date of this flat-rate pension still some way off, this situation will remain in the interim."
Additional reporting by Tim Soare