The latest proposals (announced 14th January 2013) for a state pension reform outlined by the Coalition Government.
A proposed a flat rate pension of £155 a week for everyone reaching the official state retirement age, and having at least 35 years NI contributions.
It is intended to be introduced to new pensioners from 2017.
Go to www.gov.uk/state-pension to see what the state pension for the current year is. This is paid to those who qualify with at least 30 years NI contributions.
This amount can be increased if someone has paid into the SP2 (previously SERPS) or who gain through the savings element of the pension credit.
Anyone who does not qualify for a full state pension can apply for the means tested pension credit which will top them up to £145.40 for a single person and £222.05 for a couple. The figures quoted are for April 2013-April 2014.
The current system is complex and there is evidence that thousands of pensioners do not claim pension credit and other benefits they may be entitled to because it is means tested or to difficult for them to understand.
The new system outlined in the state pension reform proposals will be a simpler system and should mean that fewer claimants will have to rely on means tested top-ups.
Baby boomer women who are not due to retire until the new system is implemented will benefit the most from the state pension reform. Many baby boomer women who took time out to care for their children or the elderly have not built up their full entitlement to the state pension.
Women who worked part-time or opted to pay the "married woman's stamp" were not able to build up their NI contributions to a full state pension, nor were they able to pay into SERPS which would have given them a top-up.
Under the new state pension reform it is proposed that the state pension for married couples will be scrapped and instead women will have the ability to build up their own entitlement. This means that a married couple could achieve a maximum state pension of £310 per week, £155. for the wife and £155. for the husband.
For those that have not built up 35 years of NI contributions by their retirement date the proposal is that part of the pension credit will still apply and there will continue to be a minimum weekly income for all. Claimants who will have to apply for it as they do now.
Self-employed people will be brought fully into the state pension for the first time.
Integral to the single-tier reforms is the closure of the State Second Pension and, by extension, contracting out of the State Second Pension – the ability to give up entitlement in return for provision of at least a broadly similar Defined Benefit occupational pension.
This element of the reforms will play a significant role in simplifying the pension system, standardising both state pension provision and National Insurance contributions across
When the proposals were first unveiled it was unclear whether people who had paid into SP2 would benefit under the new state pension reform.
When the proposals were first released Steve Webb promised that those who paid extra contributions into SERPS would not lose out. He said the new system would honour accrued payments to date so that many workers would receive more than the £155 flat rate.
He seems to have changed his mind on this now!
The new state pension reforms are likely to affect "final salary pension schemes" as these schemes will no longer benefit from discounted rates of NI contributions due to employees contracting out of S2P.
Final salary schemes are already in decline due to their growing costs and this will make them more expensive. It is likely that the proposed state pension reforms could spell the death knell for final salary pension schemes.
Baby boomers already receiving their state pension or those due to retire before 2016 will not benefit from the proposed flat rate pension of £155.
There are approximately 12 million existing pensioners who will not benefit from the new system. Michelle Mitchell at Age UK says: "Government must not turn its back on the 1.8 million pensioners living in proverty. More needs to be done to get vital benefits to those who need it."
Deferring your retirement until after the new system comes into effect will not qualify you for the new flat rate state pension. Your pension entitlement will be worked out on your date of birth.
Only those who reach retirement age after the single-tier pension is introduced on April 6, 2016 will qualify for the new £155 a week payout. If you get less today, you will keep getting less.
This is where the system seems completely unfair.
For example, a man who turns 65 on April 5, 2016, and who has worked all his life is likely to get about £118 state pension payout.
But had the same person been born the following day, their state pension would be £37 a week more.
Over 25 years of retirement he will have missed out on £48,100.
To compound matters, anyone who hits state pension age (currently roughly 61 and five months for women and 65 for men) between April 6 this year and April 5, 2016, will have a double blow.
Not only will they fail to get the higher pension, but they will be victims of the so-called Granny Tax the higher tax-free allowances that over 65s currently get.
Let us know what your thoughts are on the new flat rate pension which is being introduced from April 6th 2016 for new pensioners.
Do you think that the flat rate single payment of £155 a week is fair, bearing in mind it is not for those already receiving their state retirement pension?
Did you know that anyone who has previously contracted out of SERPS (i.e. those who would have been in a final salary pension scheme) will also not qualify for the full £155?
Are you aware of the change on the qualifying number of years for NI contributions from 30 to 35 years?
What do you think of the retirement age increase?
Click below to see what fellow baby boomers think about the new flat rate pension. All the responses here are from other visitors to this page.
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