What the budget means for pensions

The introduction of the new flat rate state pension means savers with defined benefit (DB) pension schemes will have to pay a higher rate of national insurance (NI) than they currently do. They are currently paying a lower rate of NI than everyone else because they do not have to pay for, or receive, a second state pension. But when the new flat rate state pension is introduced, both employees receiving DB benefits and their employers will have to up their contributions through NI to pay for the new system.

The move will line the government's pocket with a tidy sum of £6bn next year and will mean a DB saver earning £25,000 a year will have to pay an extra £276 a year in NI, while their employer will owe the government an extra £657. Malcolm McClean, consultant at Barnett Waddingham, said the move is another blow to DB pensions and believes the extra costs may force many schemes to close.

It wasn't all bad news, though. Workers who do not have enough working years to qualify for a full new state pension (35 years) will now have until 2023 to plug any gaps for years in which they haven't worked since 2006. The cost of doing this has been frozen until 2019 at £690 a year, and will give them an extra £214 a year for the whole of their retirement, which looks like very good value for money, according to Mr McClean.

In other good news, Equitable Life customers who bought with-profits annuities before 1992 and suffered financial loss when the company nearly went bust will be given £5,000 each in compensation after having been previous excluded from compensation. And elderly compensation receivers, who are now reliant on income support, will receive an additional £5,000, meaning they will be given £10,000 in total.

And at the other end of the scale, higher earners breathed a sigh of relief as rumours that Mr Osborne would further reduce the lifetime pension allowance from £1.25m did not come to fruition.