Uncategorised / State Pension Changes: What You Need to Know
State Pension Changes: What You Need to Know
Posted: 8th Mar 2016
By Rory McGimpsey
It has not received a massive amount of publicity, but significant changes are happening to State Pensions. Some of the changes are quite a departure from existing arrangements, so it’s important to be conversant with the news. Most of us aren’t planning to retire for a while yet, but although pensions are something that we put firmly to the back of our minds, they are essential (especially in a world where we’re all working longer).
So, what are the key changes?
• In terms of eligibility, you will be entitled to the new state pension if you reach pension age on or after 6 April 2016.
• In practical terms, this means men born on or after 6 April 1951 and women born on or after 6 April 1953.
• There will still be no mandatory requirement to stop working when you reach the State Pension age, but it won’t be necessary to pay National Insurance Contributions (NI) after reaching retirement age.
• The changes won’t affect those currently receiving State Pensions, but individuals can top up their existing pension by up to £25 a week, by paying NI or availing of the new State Pension top-up scheme.
• The earnings-related element of the current system (The Additional State Pension) is being dispensed with.
• From April, the State Pension calculation will be based on NI Contributions only-in order to receive the maximum amount under the new arrangements a person will need to have contributed 35 years’ worth of NI.
• From April 2016, the full new State Pension will be £155.65 per week-which equates to £674.48 per month.
• The new State Pension will be calculated on an individual’s NI record up to 6 April 2016-however the new calculation won’t be less than the current (i.e. pre-April) amount.
The key changes are summarised here.
With so many relying on their State Pension, why the change? The modification to the State Pension was designed by the government to simplify the process. However, popular reaction to the changes, while largely positive, has been tempered by the financial realism that underpins any economic discussion these days. For example, the FT says:
“David Cameron, prime minister, has referred to the new state pension as being “more generous” than the old. In fact, government spending on pensions will remain broadly neutral until 2040 when overall expenditure will start to fall under the new system, according to the Department for Work and Pensions (DWP). Over the longer term, the Institute of Fiscal Studies think-tank says the new system will be less generous to just about everyone than the old system, since savers will lose the chance to build up additional state pension.” You can read the full article here.
The Guardian, on the other hand, argues that while the changes will be mostly positive for older people, in the long run they could be detrimental to millions of young adults for whom retirement is still a distant prospect. It argues:
“Most people now in their teens, 20s and 30s will be worse off as a result of changes to the state pension system, while millions of older people will gain, according to the government’s own figures.
The data will fuel concern that millions of younger people are suffering from the effects of what has been dubbed “intergenerational unfairness”, partly caused by the government targeting money and resources at the older generation.
The Department for Work and Pensions (DWP) issued the data to back up its assertion that the introduction of the new flat-rate state pension in April “will make millions of people better off” – but the figures also provide stark confirmation that younger people will be losers from the changes.”
Read more here.
Naturally enough, the government response was more positive. Pensions Minister Steve Webb, announcing the changes, said: “Our reforms will create a simple, decent State Pension, which is set above the basic means test sooner. The new State Pension will be fairer to the low-paid, the self-employed and carers and make it easier for people to understand what they will get from the State when they reach State Pension age. By introducing single tier in 2016, every woman affected by the changes we have made to the State Pension age in this parliament will also now have access to the new State Pension.”
Whatever the truth, these changes are seemingly here to stay and we better get used to them. We work so long these days; the least we can expect is to enjoy our retirements.