My thoughts on the pension proposals
by John Parkinson
It is clear that those who contributed to the state earnings related pension (SERPS)are to lose out.
Prior to this new system we would have had the basic state pension and a further pension paid for by our higher contributions. Now we are reduced to the same level of pension as those who paid lesser contributions.
If we had contracted out of SERPS and paid into a private pension we would have kept all the financial benefit from the non SERPs private pension and still have received the new enhanced pension.
The result for 3 people retiring on the same day after the changes:
A pays NI all his life for at least 35 years and gets the new pension. he paid only the basic NI.
B pays higher NI all his life for at least 35 years and has earned a 2nd pension of circa £37.00 p/w which is subsumed into his new pension. He now receives no benefit for those extra contributions by comparison with A.
C earns the same as B pays higher NI in SERPs but contracts out at the earliest oportunity. He has still paid at least basic NI for 35 years. His 2nd pension amounts to £17.00 p/w. he receives the new enhanced pension wnich amounts to £20.00 more than he would have received but still keeps all the benfits of his private pension pot.
Result A and C win and C wins by the greater amount amount, both receive bigger pensions than before.
A gains more pension without having contributed to it.
B, who relied on the government to enhance his retirement pension is no worse off in pension terms than he would have been without the change but derives no benefit at all from his payment of higher NI over 35 years.
B loses out to C who receives the same state pension as B and a further private pension as well which was funded by the aditional NI paid by the government to the private pension provider.