It was announced in early December that the state pension would experience an ‘above-inflation rise’ from April this year, to £115.95 a week. From 2016 the state pension will also become a single-tier pension system, but what does this mean for current pensioners and those approaching retirement?
The old rules were largely means-tested and meant that some in lower paid jobs, or those who were stay-at-home parents, wouldn’t be entitled to as much. Now, a flat rate is being introduced which is “based on qualifying years of contributions”.
Despite the government launching an ad campaign to raise awareness, many are not sure what the reforms mean for them. A survey conducted for the Financial Times by Populus found that out of 10,000 Saga customers, the majority were not sure if the scheme would be more or less generous. Pension consultant Malcolm McLean shared his thoughts on the reform with the FT; “the government’s state pension campaign does, of course, emphasise the positives and plays down the negatives…there are losers as well as winners and the changes are actually redistributive in nature”.
So who will benefit and who will be worse off? According to the FT, stay-at-home parents, carers and those on minimum wage salaries will benefit, along with the self-employed, so those who didn’t benefit previously. Taxpayers in general will also benefit as government spending on pensions will decrease from 2014 according to projections.
There will also be the option for people to ‘top-up’ their pensions, which will allow them to make voluntary NI contributions, increasing the value of their state pension overall. This will be available for men born on or before 6th April 1951 and, for women, 1953.
There is, unfortunately, a longer list of ‘losers’ than ‘winners’. Anyone with fewer than 10 years of National Insurance contributions will not benefit, higher earners won’t have their higher contributions factored in under the new flat-rate, and those who are already at state pension age will miss out entirely
The pensions industry has seen a huge shake-up recently, and the biggest of all is due in April of this year, when all over-55s will be able to withdraw their pension as a lump sum if they wish. This opens up countless options, such as Peer-to-peer and other forms of investment for retirees, in the wake of “the most radical changes to pensions in almost a century”, in George Osborne’s words.
Find out more about Peer-to-peer lending and how it works here.