20 January 2013    |    Uncategorized

Pensions reform – some Q&As

What are the key changes being proposed?
It is proposed that from April 2017 there will be a single pension set at £144 a week, increasing to £155-£160 in four years’ time. This new ‘single-pension’ will replace the basic state pension, currently £107 per week, and its various top-ups and additional state pensions. However, it will be more difficult to claim the full state pension under the new rules.

A minimum of 35 years of national insurance contributions, increased from the current 30, will be needed to qualify. Anyone with less than 10 years’ contributions will not receive a pension. The savings credit element of the pension credit will be abolished along with the tax benefits of contracting out, which will mean bigger tax bills for millions of private and public sector workers.

How is this better than the current system?

Simplicity and fairness are the two main benefits. The current combination of basic and earnings-related additional pension systems is confusing, and many people have no idea of what they will get from the state when they retire. The new pension will be set just above the current pension credit level, which will mean less means-testing to top up pensions. Low-earners and women who have taken time off work to care for family are going to be the main beneficiaries from the new scheme.

Will everyone get the full single pension of £144?

No, £144 per week is the maximum. To receive the full weekly rate an individual will need a full 35 years of national insurance contributions or credits.  Those with shorter contribution record will be paid a proportionately smaller pension. Those with less than 10 years contributions will receive nothing.

I am already receiving the state pension. What are the benefits?
Nothing. Only those reaching state pension age after the reform is introduced in April 2017 will be entitled to the new single pension.

I was expecting to get more than the £144 minimum per week from the state pension. What will happen to the benefits I have built up?

The government says that all state pension rights accrued under the old system will be recognised, so nobody will lose out on any pension they have accrued.

I am due to reach state pension age before April 2017. Can I delay until after 2017 and benefit from the new rules?
No. Anyone reaching the state pension age before April 6 2017 will automatically receive a pension under the old rules, irrespective of when it is actually drawn.

I am “contracted out” of the state second pension. What will happen to me?
Those paying into a workplace pension instead of the state pot have paid less NICs than those who are not contracted out. But, after April 2017, many will be brought back into the state system and will pay full National Insurance. This will mean an effective tax rise of 1.4 per cent, or £250 a year, for workers earning £25,000, or £500 a year for those on £40,040. Some will benefit from special arrangements for moving back into state system, but this is a very complex aspect of the changes.

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For more information contact Angus Nicolson, or request your own Government Pension Forecast from the Government to better information you about your own personal pension position.

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