With the pension landscape forever changing and the government announcing its plans for a new flat-rate state pension, which will remove means testing, we thought it was a good time to try and explain the proposed changes to the state pension.
Why are these changes needed? In the 1940s a minority of men could expect to live to age 65 compare this to a man born in 2013 who has a 36% chance of living until he is 100 years old (Office for National Statistics).
The UK state pension system is struggling to cope with this ageing population and this has led to the current overcomplicated system.
What are the proposed changes? A single tier pension implemented in April 2017 at the earliest will see pensioners receive a 144 a week state pension. This is an increase from the current basic means tested pension of 142.70.
How will I qualify? If you have 35 years of qualifying NICs (or credits from periods such as staying at home to look after children); therefore anyone who works for 35 years will qualify.
This pension will rise in line with the triple lock guarantee at the highest of either growth in prices, average earnings or 2.5%.
When will I get my pension? From age 66 by October 2020 and age 67 between 2026 and 2028. From November 2018 this will be the same age for men and women.
It is likely that this will rise to age 70 in future generations.
What about the self employed?Â They will benefit from this reform; under the new rules all NICs paid will be treated equally in the calculation.
What do we think? All in all, good, by setting the minimum standard individuals can expect to receive from the state people should be encouraged to save for their old age. As well as the self employed it is good news for women, who may have taken employment breaks.
Who are the losers? There has been concern that this means people will contribute longer for less; current rules mean that 30 years NICs plus S2P would provide 150 per week and the new rules mean working 35 years for 144 a week.
Also existing pensioners will be left with the complicated old means tested pension credit system.
Finally, wealthy people; a high earner at the moment can receive S2P worth up to 150 a week on top of the state pension but this will be scrapped and there will be no ability to build up this additional amount.