New flat-rate pension plan will see millions paying more tax.

It is thought that the Coalition’s new flat-rate state pension plan, set to start in 2017, may leave many paying hundreds of pounds more tax each year.

The new system aims to streamline the current pension plan which links payouts to lifetime national insurance payouts. The new plan could be advantageous for many part-time workers, some self employed people and those who take a career break to bring up children. The government estimates that 750,000 women who reach pension age in the decade after the new system is introduced will receive an extra £9 a week. Currently 2.8 million women receive a state pension of under £80 a week, compared with 474,000 men.

Despite the new system benefiting many, it is estimated that more than six million will be worse off. Workers who belong to contracted out final salary schemes and pay lower NI contributions at present, will have to pay significantly higher contributions once the new system is implemented. Some public sector workers in such schemes will also have to pay more – although this will be partly offset by their eventual higher state pension

Pension age increases may also mean that children and teenagers are likely to wait until they are in their 70s to qualify for state payouts.