MSE News: Guest Comment: What you need to know about the new State Pension

Reasonable enough article, but rather biased in places. I am in favour of the reforms, but the full outcomes of the changes should be presented, not just one side.

Pensioners are already benefiting from the Government's triple lock commitment in this Parliament – the State Pension has risen each year by whichever is the highest out of earnings, prices or 2.5%. The basic state pension is worth £440 a year more in 2014/15 than if it had been up-rated by earnings since the start of the Parliament.

But less than if the previous uprating system had not been changed and remained linked to RPI.

Thanks to this policy, the basic State Pension today is at its most generous relative to average earnings than at any time since 1992.

Due not to generosity, but to the lack of earnings growth leading to prices (and hence State Pension indexation) to be higher than earnings for a sustained period.

One thing that won't change is the contributory nature of the system. In other words, whether or not a person is entitled to the full rate will continue to depend upon them having made sufficient National Insurance contributions during their working life.

Rather misleading, given the contributory nature is being significantly watered down, and removed once 35 qualifying years is reached unlike the current system, which is a significant change.

What makes the new system fairer is that there is better recognition through National Insurance credits of the valuable social contribution women make, for example, if they take time out of work to look after elderly parents.

Fairer is a very subjective term and best avoided. Many would consider it fairer if those who contributed the most received the most. It is also misleading to intimate women are gainers from the reform - whilst historically women did not have full pension records that is no longer the case. Many women will be worse off from the reforms.

In the longer term, we estimate that over 80% of people will get the full level of the new State Pension. But over the next few years, because of those transitional arrangements we are putting in place to ensure that everyone's previous contributions are reflected, different people will get different amounts.

So in the longer term, the contributory nature of the system is removed/capped for the vast majority of people, and it is of little difference whether someone has worked or not, nor how much they have contributed in determining how much they get.

Generally, this [being contracted-out] means that you have paid lower National Insurance contributions at some point and paid that money you saved into a workplace or personal pension instead.

During the time you were paying those lower National Insurance contributions, you weren't paying in to the Government additional State Pension, also known as SERPS or State Second Pension. So your new State Pension may reflect this.

Which aside from the requirement to pay the saving into a pension is the same as for self-employed people who also paid lower National Insurance and in return didn't build-up any additional State Pension. Yet self-employed won't get any deduction applied.

5. Who gains?

Key gainers under the changes are those people who would under the current system have low levels of additional State Pension.

Often these people will have taken time out of work in the past to look after children or care for people with disabilities, and before 2002 they didn't receive protection through National Insurance credits for the additional State Pension.

This will also benefit many low-income workers and the self-employed.

It would be helpful to detail that the measure leads to significant expenditure reductions in the long-run, so the section would be more appropriately headed "Who loses?"

I'd argue that those who have decent amount of contracted-out deserve a mention as probable gainers. Public sector workers also gain, as well as being contracted-out, their public service pension arrangements will not be changed due to contracting-out abolition (private sector DB schemes are permitted to offset the reduction in contracted-out rebates). They will pay higher National Insurance contributions though.

In the interests of balance, it should be pointed out that those who work most their lives are significant losers from the reform. The amount lost will be greater than the amount gained, meaning there is both cutting and redistribution going on as a result of the reform.

The reference to 2002 seems irrelevant in the context of the reforms.

hugheskevi wrote: »

Due not to generosity

Nothing done by a government should ever be describes as generous because it's not their money they're spending. It's mine.

Whereas the basic pension used to rise with RPI, there was no such commitment made to the additional pensions. Under the previous government there was one year when these had no rise applied at all, and others where the increase was below RPI. This was sneaked through each year in the Budget by only announcing the RPI rise of the basic pension verbally in the speech with the details of any rise applied additional pensions being only referred to quietly in the small print documents.

Whatever the precise circumstances were on a year-by-year basis there has been a regular differentiation between the uprating of the 'basic' pension compared with additional, thus eroding the supposed 'earnings related' component of the total pension. Of course this persists today with the additional pension having a CPI valorisation, which has often been less than that one of the other conditions in the 'triple-lock' applied to the basic.

One thing not mentioned can affect people who have pension contributions in other countries with a reciprocal arrangement - hitherto the additional pension has been disregarded in the calculation partitioning pensions between countries concerned and paid out on top. Now that the differentiation has been abolished it will go into the calculation.