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

wakeupalarm

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?

No, the cost of all this will be neutral.

No one except the poorer(in terms of their pension amount) future pensioners are going to gain from these proposals. Those with total pensions above £140 will keep their existing pension amounts, only those below will see any benefit.

You are NOT going to see situations where people with say £40 serps/s2p will received £140 + their existing £40 serps/s2p. Its just not going to happen.

hugheskevi

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.

Under the new system there would be a contracted-out deduction applied to the £140 for someone with your history, so you will be better off than £4.

seven-day-weekend

hugheskevi wrote: »

Under the new system there would be a contracted-out deduction applied to the £140 for someone with your history, so you will be better off than £4.

So how does that work then? (Words of one syllable please and sorry for being so thick!).

zagfles

seven-day-weekend wrote: »

So how does that work then? (Words of one syllable please and sorry for being so thick!).

The new "£140 a week" will include the second state pension (SERPS/S2P). If you've been in a scheme contracted out of SERPS then you get those benefits from your scheme instead of SERPS. So they will reduce the "£140" to account for this (not sure exactly how).

dougz_2

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.

No, it seems they would not be particularly better off under the proposals, what they gain in state pension they basically lose in benefits:
Using https://www.turn2us.entitledto.co.uk and assuming CT £1000pa and LHA £100pw
This pensioner could currently qualify for £7,045.53 in state benefits , making a total income of £14203pa
They are only £20.95pw better off because of their £40pw pension.

Bumping up the state pension to £140, and abolishing Savings Credit (as per green paper)
State benefits drop to £4955 making total income £14315pa
They are only £19.54pw better off because of their £40pw pension.

All above before tax.

So it seems, under the proposals, this pensioner would be LESS rewarded for saving towards their own retirement pension.
Plus they would always lose all their benefits if having more than £16k savings, even with no other income.

zagfles

dougz wrote: »

No, it seems they would not be particularly better off under the proposals, what they gain in state pension they basically lose in benefits:
Using https://www.turn2us.entitledto.co.uk and assuming CT £1000pa and LHA £100pw
This pensioner could currently qualify for £7,045.53 in state benefits , making a total income of £14203pa
They are only £20.95pw better off because of their £40pw pension.

Bumping up the state pension to £140, and abolishing Savings Credit (as per green paper)
State benefits drop to £4955 making total income £14315pa
They are only £19.54pw better off because of their £40pw pension.

All above before tax.

So it seems, under the proposals, this pensioner would be LESS rewarded for saving towards their own retirement pension.
Plus they would always lose all their benefits if having more than £16k savings, even with no other income.

Yes but by the time all this comes in, the new universal credit would have started, which will change things completely. CTB is outside UC and will be handled locally (not sure how). The withdrawal rates should be lower than the current 85% which applies to HB plus CTB. They could even give pensioners the same applicable amount as everyone else, currently pensioners' AA is about double what someone under 60 would get! If they did this then the number of pensioners entitled to LHA/CTB would be reduced.

seven-day-weekend

zagfles wrote: »

The new "£140 a week" will include the second state pension (SERPS/S2P). If you've been in a scheme contracted out of SERPS then you get those benefits from your scheme instead of SERPS. So they will reduce the "£140" to account for this (not sure exactly how).

So everyone WON'T get £140 pw State Pension then....?

dougz_2

zagfles wrote: »

Yes but by the time all this comes in, the new universal credit would have started, which will change things completely.

But according to http://www.official-documents.gov.uk/document/cm79/7957/7957.pdf non working pensioners will not be covered by UC, they will get housing benefits added to their Pension Credit instead:
It is important to provide continuity for older people in getting the help and support they need. The Government therefore plans to make some changes to Pension Credit. These changes will consolidate support for rent with the help available for other housing costs within Pension Credit
I note their use of the word continuity, so I was thinking the current conditions for HB was as good a guess as any?

Anyway, assuming that Pension Credit continues roughly as it is, but with the Savings Credit element of it abolished, and the £140 state pension automatically lowering the £16k savings ceiling down on them, I can't see how the green paper is anything other than a disincentive to save for those with modest means?

zagfles

seven-day-weekend wrote: »

So everyone WON'T get £140 pw State Pension then....?

Nope they'll apply an "offset" to anyone whose been contracted out. After all it would be totally unfair if everyone who contracted out got the benefit of the contracted out pension plus the new pension.

zagfles

dougz wrote: »

But according to http://www.official-documents.gov.uk/document/cm79/7957/7957.pdf non working pensioners will not be covered by UC, they will get housing benefits added to their Pension Credit instead:
It is important to provide continuity for older people in getting the help and support they need. The Government therefore plans to make some changes to Pension Credit. These changes will consolidate support for rent with the help available for other housing costs within Pension Credit
I note their use of the word continuity, so I was thinking the current conditions for HB was as good a guess as any?

Anyway, assuming that Pension Credit continues roughly as it is, but with the Savings Credit element of it abolished, and the £140 state pension automatically lowering the £16k savings ceiling down on them, I can't see how the green paper is anything other than a disincentive to save for those with modest means?

Interesting, I missed that bit in the UC:o.

But the "current conditions" for HB are a 65% taper. The pension credit has a 100% taper (without the savings credit). I wonder if they'll preserve the current applicable amounts and HB taper rules for pensioners who reach state pension age before the switchover, so giving them "continuity", but after the switchover don't increase AA's when people reach state pension age?

For a single person the AA is £67.50, for a single pensioner it's way over double at £157.90 !!

So if, as part of the move to the new scheme, they didn't give the higher AA to new pensioners who get the new "£140" flat pension, then as their AA is way below their income, and if HB, as part of PC, has the same 100% withdrawal, then only rent above £72.50 would get "HB". And for a couple - the AA would be £105.95 and income would be £280, so unless rent was greater than £174pw there'd be no PC/HB!!

So based on a typical one bedroom LHA rate (under the new 30th percentile scheme) of about £90pw, a single "new" pensioner renting would lose less than £20pw and a couple wouldn't lose anything if they have saved.

CTB will be dealt with locally and I presume this would apply to pensioners too - wouldn't be surprised to see the non-means tested reductions some councils give to pensioners extended.