Will you benefit from the flat-rate state pension?
It’s not just the rules governing your private pension that are being overhauled — in 12 months’ time, the state scheme will get a facelift, too.
In April 2016, a new state pension of £148.40 a week will be introduced.
How is the state pension changing?
The current state pension system is vastly complex — and many people end up failing to claim vital benefits and credits. At the moment, savers with 30 years of National Insurance (NI) contributions can receive a basic state pension of £113.10 a week. On top of that, those in higher paid jobs can build up a second state pension. This can pile on up to another £168. Those on lower incomes can claim extra credits, and there is a boost for those with savings, too. But from April 2016, everyone with 35 years’ worth of full-rate NI contributions will get a flat rate of £148.40 a week.
The additional state pension has been scrapped (though all those who have already built up more than a weekly £148.40 worth of payments will get to keep them).
There will be no more credits and no more benefits.
Who will benefit?
Under the current system, those who stayed at home to care for relatives or children have traditionally been treated like second-class citizens. This is because they have been unable to build up enough NI contributions to qualify for the second state pension during their years outside the workplace.
The self-employed and low-paid are also excluded from these extra payouts because they, too, are unable to build up enough NI contributions.
But from 2016, as long as these groups have 35 years of full NI contributions, they will qualify for the full flat-rate payout.
And under recent changes in the way National Insurance contributions are earned, those caring for relatives or children will automatically get their annual NI contribution — if they claim carer’s allowance or child benefit.
Who may not?
Though many people who are set to retire in 2016 expect to receive the weekly £148.40, about six in ten will not.
This is because, under the current system, many workers in final salary schemes — which tend to be more generous — have been opted out of claiming extra payments designed for higher earners, called the second state pension.
In return for taking the burden off the state, they were allowed to pay reduced National Insurance contributions.
This is known as contracting out.
From 2016, under the new flat-rate pension, anyone who paid this lower rate will have a deduction made for the years that they were contracted out.
It means that workers in final salary pensions are unlikely to get the full payout — the Government expects their final salary pension to fill the gap.
If you need help or advice with your Retirement Planning including the new pension freedom changes please contact me.
Kind regards,
Debbie Day.
Mobile:07704311021 email:deb.day@hoskinfinancial.co.uk website:debbiedayifa.co.uk
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