State pension changes - impact on those due to retire soon?

mark55man

There seem to be two camps on this one

* those due to retire on the new system and they are complaining that the system will put less money in total so that be definition it is a worse system than the old system
* those due to retire on the old system and they are complaining that they will be getting less than people on the new system

Go figure, except oh yes we live in Britain so a certain amount of looking for the worst possible scenario is to be expected. I do realise that on the fringe there may be people for whom there is unfairness, but these will be smoothed (but probably not removed) as the implementation goes ahead.

There will of course then both be simultaneous demands for the sytem to be simplified, and for complicated transitional arrangements to be put in place. go figure x2

Linton

As someone who will get a state pension before 2017, I agree that this should be on the existing rules. Its what I expected and planned for.

kidmugsy

1) The perfect is the enemy of the good - if reforms have to be perfect, none could ever be introduced.

2) Have people any idea how childish they sound? "Mummy, he's got one - I want one too."

jamesd

JohnB47 wrote: »

I retire in December 2016 - just a few months before the change. Will I lose out?

No. You'll get what you have been able to expect for years under the current system. For the few years around the introduction of the new system here's how the likely winners and losers work out:

1. Those with full working records, better off under the current system. This is because the SERPS and S2P additional state pension is usually going to result in combined basic and additional state pension that is higher than the flat rate pension.
2. Those with minimal working records or mostly basic state pension credits won't get much additional state pension under the current system, so they would be better off under the new system.

So roughly: if you've worked hard in employment you're better off under the current system, if you haven't, you're better off under the new one.

Looking longer term, most people are worse off under the new system because it accrues benefits at a slower rate than the current one. Reduced pensions for later retirees are a big part of how its being made cost neutral - the later generations paying the bill.

Froglet wrote: »

Oh yes there IS a big impact.It is called resentment and will be felt by millions of people.I don' t think i have ever known such an unfair system.

I agree, it's definitely unfair. Many of those on the new system will get less then those on the old system, with those born from around the mid 1980s made worse off by the new system.

They are worse off because the pension rights accumulate more slowly under the new system than the old one, so they end up with less than those who are getting normal earnings-related SERPS/S2P based additional state pension today.

The big winners of the new system are those who didn't work much. Even low earners who worked a lot end up worse off.

It's a gift to current voters near to retirement, paid for by those less close to it and increases the cross-generational subsidy to the baby boomer generation from the later ones.

kidmugsy

jamesd wrote: »

They are worse off because the pension rights accumulate more slowly under the new system than the old one

The big winners of the new system are those who didn't work much. Even low earners who worked a lot end up worse off.

It's a gift to current voters near to retirement

1) Which "old one", jamesd? Are you referring to the long-lasting old one where men had to have 44 years of contributions to get the full state pension, or the fleeting one where 30 was enough? (N.B. No sarcasm intended; genuine enquiry.)

2) I presume the subsidy to "those who didn't work much" was what they meant when they said that many women would be better off.

3) AH I hadn't realised that it was "a gift to current voters near to retirement" - I suppose it's not legally a gift since something is expected in return i.e. votes.
I'm not convinced they've got their political calculation right on that: the envy and resentment of those who are too old to share the spoils may carry more weight. Second childhood and all that.

jamesd

kidmugsy wrote: »

1) Which "old one", jamesd? Are you referring to the long-lasting old one where men had to have 44 years of contributions to get the full state pension, or the fleeting one where 30 was enough?

Both. The S2P based one we have today is better for lower earners than SERPS was, while SERPS was better for average and higher earners. But both beat the new one for those a longer way from retirement and who are working.

The general rule around transition time is: the harder you worked in employment and the more you paid in, the less likely you are to benefit if paid under the new system.

kidmugsy wrote: »

2) I presume the subsidy to "those who didn't work much" was what they meant when they said that many women would be better off.

That's some of them. The winners are roughly:

1. Those who stayed at home and didn't accumulate much additional state pension. Homemakers of any gender who also stayed out of work after normal child raising age. Those who worked a lot before and after children may be better or worse off, depends on how much work they did and how well paid it was. Working women end up probably worse off, non-working better off.
2. Long term unemployed. No additional state pension, so pure winners.
3. Those serving long prison sentences, minimal additional state pension, so pure winners. Ideal candidate, a young murderer with multiple life sentences who gets out around state pension age.
4. The self-employed, who have paid reduced NI but will get full NI benefits.
5. Those who were out of the UK a lot and not getting much SERPS or S2P, but who have time to get closer to 35 years of entitlement under the new system.

kidmugsy wrote: »

3) AH I hadn't realised that it was "a gift to current voters near to retirement" - I suppose it's not legally a gift since something is expected in return i.e. votes.

True, but what else do you expect when there's an election coming up between now and this starting?

kidmugsy wrote: »

I'm not convinced they've got their political calculation right on that: the envy and resentment of those who are too old to share the spoils may carry more weight. Second childhood and all that.

Could be. It also depends in part on how many of those who are middle aged and younger realise that this makes them worse off and vote accordingly.

There's a fair chance that I'll be better off under the new calculations. It'd depend on how long I worked at my current income level. The less I work, the greater the chance that I'll be better off under the new one.

molerat

After reading the white paper and discussions on here it looks like a 50/50 in our house. I "retire" in 2019 and spent most of my working life contracted out. I am waiting for an NI statement but I reckon I have got 37 years. My current forecast is £107 + £16 Grad / SERPS / S2P. So the calculation would seem to be which is the better of the current or £144 - the mystical contracting out deduction, possibly a no change situation. MrsM, SP date 2021, has got 27 years so hers would seem to be 27/30 of £107 + 12p !! or 27/35 of £144, the latter being around + £16. Neither of us will be earning any more NI years.

jamesd

You'll probably have a base level below £144 and be able to increase it by buying a couple more years. So you'll probably benefit from the new system.

For Mrs it depends on her additional state pension entitlement. She can be better off if she can buy more years, if she starts below £144 total under current rules.

Jack_Griffin

jamesd wrote: »

It's a gift to current voters near to retirement, paid for by those less close to it and increases the cross-generational subsidy to the baby boomer generation from the later ones.

The bulk of the baby boomers are already claiming pensions or will do so before the changes come in. If you were born in 1946, you'd be 67 now. There is another smaller blip of those born around 1965, or now approaching 50, they will definitely lose out as Serps/SP2 is eroded & they can't build any more credit after 2017.

xylophone

Up till recently men had to get 44years NI to get full pension and women only 30.

Until
6 April 2010 women had to have 39 years.