S2P phase 2 starts when?

jamesd

Are there any somewhat firm dates for when phase 2 of S2P will start and it will accrue at flat rate for those under 45 at the time of the start of phase 2?

The nearest I've seen to a date is it being introduced from 6 April 2002 and phase 1 planned to last for 5 years.

jamesd

The nearest I've found to an answer is now 2012, when the plan currently is to restore the link between state pension and earnings and change the additional state pension to a flat rate for each qualifying year, regardless of the amount paid in conributions.

Based on the Guardian report of a speech James Purnell made to the Social Market Federation.

From the look of it, those with a very incomplete contribution history may still benefit significantly from contracting out.

EdInvestor

2012 is the year when they propose to end contracting out from personal and money purchase company pensions.It will continue for final salary pensions.

Earnings linked S2P is not being phased out. It is being "flattened", by reducing the top earnings limit and increasing the amount eventually payable to the lower paid.

In around 100 years from now it may have flattened sufficiently that there is a higher flat rate pension for all but I wouldn't hold my breath for that any time soon.

jamesd

"As it stands, State Second Pension is currently calculated in a very complex way, based on how much someone earns in a year. We are giving serious consideration to replacing this, at the same time as linking the basic State Pension to earnings, with a fixed amount of money that everyone will receive, based upon the amount of time they have spent working or caring for someone.

This fixed figure could be worth in the region of £1.40 a week for each qualifying year spent working, caring, or a combination of both activities.
...
By the 2050s, for example, someone who contributed for most of their life through working or caring would be entitled to around £135 a week from state pensions in retirement."

That's a fixed amount for each year worked, regardles of contribution level. That wording makes 2050 a retirement date that suggests that it could apply to those who are now 44 through 42 years old, depending on the state retirement age at the time.

From the look of it, someone on average earnings today can't prudently assume that the value of their contrbutions in 2050 will be the same as it appears to be today. That possibility of the value being reduced in the future suggests that contracting out may be more appropriate. More so for those with very incomplete contribution records, who already have a lower target to beat.

If it is just to be a straight number of years basis, lowering the upper earnings limit substantially seems to be fair, since it's then effecitvely just another income-related tax.

Milarky

They can't do this for the simple reason that all entitlements are built up sequentially. All previous pension reforms - indeed all changes to employment pension schemes occur by changing the ongoing character of the benefits accrued; but past benefits - assuming they are sufficiently funded - are fixed as they are based on contractual 'promises'.

So during your working lifetime (you are 42) you will have accrued rights (whether 'contracted-out' or not) under:

SERPS '1' (until 1987)*
SERPS '2' (1988 to 2001)
S2P (2002-2012?) and
S2P '2'? (2012- )

*There was a retrospective element to these entitlements - they were changed in 1985 so that only workers within 20 years of retirement when SERPS came in in 1978 were left on the original Barbara Castle formula whilst those younger than this were moved to a less generous formula. After 1988 the accrual rate dropped again

After 2012, whatever reforms the gov't decides on for the additional pension, will only apply from those years on. At state retirement pension age therfore you will receive an additional pension based on the four periods identified unless they mean to go totally retrospective. Given the obviously timerous nature of these (and all) pension reform proposals they don't mean to do this and so it is only possible to discuss these changes as making up the 'final' part of one part of the overall state pension.

Also, it's my understanding that personal contracting out will end in 2012. After 2012 therefore you can only be contracted out through an employer scheme - which then only covers some of the benefits of S2P - the balance of the benefits still coming through the state pension.

It's an absolute dog's dinners, this. They can't promise clarity and certainty because, as explained, it isn't theirs to deliver unless they were prepared to do what they have intellectually ruled out - which is a 'single' flat rate pension. They have said 'no' to that on the specious grounds that:

i) It would dilute the contributory principle [and what is cutting the number of qualifying years for the basic state pension at a stroke to 30 after 2012 if not a significant dilution of the contributory principle?]

ii) It would result in a loss of some pension to some higher earners which they might object to [and, of course, everybody can work ot exactly what they stand to get today can't they? Oh, no! it's already difficult enough even for the state to work it out, as they have implicitly accepted. What he doesn't say however is that it might cost more in pensions too -as opposed to the salaries of those who calculate at great length and then distribute it]

EdInvestor

Milarky is right - I think I've read that the differential earnings-linked rates will not finally wash out of the system until around 2080, something like that.

jamesd

Well, they have been built up sequentially in the past and I don't really expect them to breach those undertakings.

One massive retrospective change that's already been announced has been changing the retirement age, which is lowering the benefits for women by five years of pension payout. Possibly going to do it for both men and women by two years around 2020 and 2030. Contributions paid before those things were announced have clearly been devalued, unless the pension levels were raised. They were, but for all, so this redistributed the saved money from women to men.

I've read different things on stopping contracting out, some saying it's going to be stopped, some that it's going to continue, some of those only for contributory company schemes.

I agree that it's a dog's dinner, particularly for those around the ages where transition thresholds are uncertain. I don't really expect clarity to ever arrive, though it does look as though both political left and right now agree that contributions to private pensions are good, so there's some welcome increased certainty there.

EdInvestor

One massive retrospective change that's already been announced has been changing the retirement age, which is lowering the benefits for women by five years of pension payout.

At the same time the change to the 30 year rule will more or less double the numbers of women who get the basic state pension.The system is also to be rationalised to get rid of other quirks which reduce women's entitlement .And of course from 2010, the beginning of the equalisation on the age is accompanied by the right for male partners to claim on female contributions for the first time.

So I think most women will be quite happy with the outcome, although there are some losers, such as those retiring between now and 2010 with more than 30 years conts but less than the full pre 2010 amount, who will not get the full BSP.However they get what the do get earlier, so you could say they are not losing much.