MSE News: Flat-rate state pension could be £155 a week

SnowMan

Old_Slaphead wrote: »

So you and your employer have been paying around 5% of your salary to fund S2P and the government are going to (in your example) keep 75% of it?

Surely the add-ons, SERPS/S2P/SGP etc, have been paid for therefore each person should keep their accrued entitlement - in addition to any minimum state pension.

The implication in the consultation document is that under option 2 you are entitled to keep your accrued SERPS,S2P etc in addition to your BASIC state pension (old meaning). So you are keeping all of it as under the old system.

The suggested flat rate pension is effectively your basic state pension plus your additional pension although it will be expressed as a single figure. So giving you SERPS/S2P on top of the flat rate pension is effectively giving you the additional pension twice.

If your basic state pension plus SERPS/S2P/SGP is more than £140pw (which isn't the case in the example) then you get that higher amount and not £140pw it seems.

Some of the complications will arise out of the flat rate state pension accruing over 30 years under option 2, whereas existing SERPS/S2P may well be accrued over a longer working life time of say 49 years. So there may be someone on a high salary with substantial SERPS/S2P already accrued over say 32 years at the transition date, and how on earth will their entitlement be calculated given they already have more than 30 years. Even though it looks like their past SERPS/S2P is protected you can see them losing out on future accrual.

It really is mindboggingly complex to work out the transitional arrangements and I think they are going to struggle with that and who knows what they will come up with.

I agree with the earlier comment that until we see the eventual formulae it is very hard to do anything other than speculate.

JimmyTheWig

Am I right in thinking that this will particularly benefit those who have made small pension contributions through their working life?

E.g. someone has a private pension that was converted to an annuity that pays out £40 a week.
Currently they would receive £97.65 state pension plus £40 annuity totalling £137.65.
But if they had made no private pension contributions they would be getting £132.60.
I.e. all those contributions they made only make them a fiver a week better off.

But with the new scheme they'll get £140 (in today's money) state pension plus their £40 a week annuity. I.e. their contributions will make them £40 a week better off.

Is this the case?

hugheskevi

E.g. someone has a private pension that was converted to an annuity that pays out £40 a week.
Currently they would receive £97.65 state pension plus £40 annuity totalling £137.65.

They would also get some Savings Credit, approx £20 a week, so total income about £155-£160.

But with the new scheme they'll get £140 (in today's money) state pension plus their £40 a week annuity. I.e. their contributions will make them £40 a week better off.

The only way the person who has a £40 annuity wouldn't be getting some SERPS/S2P would be if the £40 came entirely from contracting-out, in which case it would be deducted from the £140 p/w.

Most likely such a case (£40 private pension, full BSP, zero Additional Pension) would be someone self-employed all their life. This illustrates why they are the big winners here.

bilbo51

hugheskevi wrote: »

They would also get some Savings Credit, approx £20 a week, so total income about £155-£160.



The only way the person who has a £40 annuity wouldn't be getting some SERPS/S2P would be if the £40 came entirely from contracting-out, in which case it would be deducted from the £140 p/w.

Most likely such a case (£40 private pension, full BSP, zero Additional Pension) would be someone self-employed all their life. This illustrates why they are the big winners here.

So with my current state pension forecast of £179 (Basic plus Payable Additional plus (£2.00!) Graduated Pensions) and my contracted out pot of £73,500 (GAR 10%) what is your readng of what I might expect from these when I retire in 5 years time Kevin?

seven-day-weekend

I am an existing Pensioner and my State Pension is (at present) £104 a week. I also have a Local Government Pension which I will take in 2014 and on today's rates it is worth about £50 a week. So that is a total of £154 a week

Is this what I will get after the changeover (allowing for index-linking)?

If so, am I correct in thinking that if I had retired after the changeover then I would have got the new amount (Say £140 a week), plus my LG pension therefore giving me a total of £190 a week?

Am I also right in thinking that someone who has never paid a penny in NI will still get £140 a week?

If I am correct in all my assumptions i will have contributed NI for 39 years AND paid into my LG Pension for £14 aweek.

bilbo51

seven-day-weekend wrote: »

I am an existing Pensioner and my State Pension is (at present) £104 a week. I also have a Local Government Pension which I will take in 2014 and on today's rates it is worth about £50 a week. So that is a total of £154 a week

Is this what I will get after the changeover (allowing for index-linking)?

If so, am I correct in thinking that if I had retired after the changeover then I would have got the new amount (Say £150 a week), plus my LG pension therefore giving me a total of £204 a week?

Am I also right in thinking that someone who has never paid a penny in NI will still get £150 a week?

If I am correct in all my assumptions i will have contributed for 39 years for £4 aweek.

They have said that none of these proposals affect current pensioners.

The person who has paid nothing in NI will get no state pension I believe. But will probably get other benefits...

hugheskevi

So with my current state pension forecast of £179 (Basic plus Payable Additional plus (£2.00!) Graduated Pensions) and my contracted out pot of £73,500 (GAR 10%) what is your readng of what I might expect from these when I retire in 5 years time Kevin?

Using information above and from the previous post, total weekly income under current system will be:

£97.65 Basic State Pension
£81.41 Additional pension
£141 from private pension (protected rights, but that is removed next year so isn't relevant) plus any other private provision.

That income should put you well clear of means-testing, so that also isn't an issue.

Total State Pension income of £179.06, also well clear of £140 p/w.

The Green Paper says that DWP will

Recognising people’s pension records under the existing system in a way that is fair, but facilitates transition to the new system as quickly as possible...This would mean people with higher amounts of additional State Pension before the introduction of single tier would receive correspondingly higher weekly payments than the current estimate of £140.

My reading of this would be that the £179.06 would be protected, but there would be a question about how it would be uprated. Under the current system basic state pension would be increasing by triple-lock and Additional Pension by CPI. It is unclear to me what the protected amount would increase by.

SnowMan

JimmyTheWig wrote: »

Am I right in thinking that this will particularly benefit those who have made small pension contributions through their working life?

E.g. someone has a private pension that was converted to an annuity that pays out £40 a week.
Currently they would receive £97.65 state pension plus £40 annuity totalling £137.65.
But if they had made no private pension contributions they would be getting £132.60.
I.e. all those contributions they made only make them a fiver a week better off.

But with the new scheme they'll get £140 (in today's money) state pension plus their £40 a week annuity. I.e. their contributions will make them £40 a week better off.

Is this the case?

As well as the £20 pensions savings credit that hugheskevi mentions, another consideration is eligibility for housing benefit and council tax benefit.

Somebody with total income around this level and no savings would currently be eligible for help with council tax through council tax benefit , and with rent (if they rent) through housing benefit.

Presumably housing benefit and council tax benefit will still be available under the flat rate pension proposal. So there would still be some loss from the extra £40pw works pension being paid on top of the flat rate pension because of the withdrawal of housing benefit and council tax benefit through the higher total income.

seven-day-weekend

bilbo51 wrote: »

They have said that none of these proposals affect current pensioners.

The person who has paid nothing in NI will get no state pension I believe. But will probably get other benefits...

Yes, I understand that. My point is, that even with my LG Pension, I will only have £4 more than someone will get with just the State Pension,. If I didn't have that I would be a lot worse off than someone under the new scheme, even though I may have paid in for longer.

bilbo51

seven-day-weekend wrote: »

Yes, I understand that. My point is, that even with my LG Pension, I will only have £4 more than someone will get with just the State Pension,. If I didn't have that I would be a lot worse off than someone under the new scheme, even though I may have paid in for longer.

I think you're right.