State pension:

8th March 2011

Women who take career breaks to have a family will be the biggest winners in what This is Money reported as one of the most radical pension reforms ever.

It will mean women who miss making National Insurance contributions by taking time out of work to raise a family will not end up receiving a lower state pension.

It will also end means-testing for pension top-ups;  ministers also hope to encourage people to save for their retirement, safe in the knowledge they will not lose out through their prudence.

Currently, women are entitled to buy extra years of National Insurance – usually a maximum of six at a cost of about £630 a year – to supplement pension contributions.

Some can buy a further six, if they have already got 20 years clocked up and will reach state pension age before April 5 2015.

Yet the breaks in stay-at home mothers' work records mean the average basic state pension for women currently stands at just £70.26, compared with £83.74 for men. 

The Telegraph reports that the changes will sweep away a host of complex rules and "fundamentally simplify" the basic state pension.

Official estimates suggest that many women who take time out from work for family reasons are left up to £40 a week worse off by rules that base pension payments on National Insurance contributions.

In a speech to charity leaders and pension experts, Mr Duncan Smith will condemn the pension system as a bureaucratic mess that leaves many people confused and puts young people off saving

Tom McPhail, head of pensions research at Hargreaves Lansdown said the reforms would prove to be a "keystone which will support the weight of millions of people's retirement provision".

He added: "Without this reform there would always be a risk of confusion, disengagement and missed opportunities."

"A simple, universal state pension will minimise the risk of people opting out of the auto-enrolment process, due to start next year; it will also ensure that everyone has a clear expectation of what the state will deliver for them, helping them to plan how much they need to save on top in order to deliver the retirement income they aspire to."

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