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

Jack_Griffin

@xylophone - Whoops you're right & I misread something I didn't know about before the last few weeks.. I corrected my post #30 by removing my blunder, thanks for correction ;-)

jamesd

Jack_Griffin wrote: »

The bulk of the baby boomers are already claiming pensions or will do so before the changes come in.

The baby boom generation was from 1946 to 1964 so the oldest will be 71/72 in 2017, the youngest 53/54.

The baby boomers after the change get the best of both systems in many ways. A base calculation using the old rules and a chance to accrue more under the new system if they don't already have more accrued than the £144 figure.

When evaluating this it's important to consider the variations in lives and not assume all have full working records. The biggest gainers are those who don't have full working records and end up with £144 instead of more like £104 from just the basic state pension for years credited on benefits or for other reasons. Lots of women in this group, along with self-employed, those on benefits long term and prisoners.

The baby boomer losers are the ones who have a total pension at transition that's higher than the new level and can't add to it, however much more NI they pay, when under SERPS/S2P you continue to increase your pension as long as you're paying earnings-related NI. People on relatively high wages, either higher paying jobs or working lots of hours.

The following generations will just accrue at the lower rate and most workers won't be able to get to what the combination of basic state pension and SERPS or S2P would pay them them. So by the mid 80 births most probably end up worse off under the new system, according to IFS analysis.

Jack_Griffin

That definition of baby boomers is more apposite to the US. Look at the graph.

Jaycee_Dove

The argument about winners and losers works well for employed people but not for self employed. This is where the changes have maximum impact and create the biggest cliff edge. Retire pre the new pension and you get the basic SP and no S2P on the reasonable and long understood basis that you pay lower NIC if self employed. But if the new system awards full equivalency between self employed and non self employed then there is a £37 pw difference happening overnight for people who have not paid more NIC.

Moreover, someone who has workedself employed for well over 35 years and paid SE NIC for maybe 40+ years will get £37 pw less than someone who has paid the same SE NIC for several years less (ie 35 years).

That does not match the argument that those who have worked hardest and longest are better on the old system. With the self employed in the period just before and just after the start of the new system that is very clearly not the case.

Though I suspect this problem will gradually sink in and there will be tweaks whereby new pensioner self employed post 2017 will see their sum phased in towards the full £144 the longer they pay the inevitable increased NIC payments for self employed from 2017 onward. That would make it fairer I think.

Jaycee_Dove

p00hsticks wrote: »

If by this, you mean that people already retired should be switched to the new scheme, then this wouldn't be fair and is liable to cause much resentment in itself. You can't wind back the clock - many existing pensioners, particularly women, will have started claiming their pension much earlier than people yet to retire beyond April 2017 will have been able to. People retireing now can get a full pension with only 30 years NI contributions, rather than the 35 years people will need in future. How is it then fair to say that these people should be given the new higher rate a well ? That would be having your cake and eating it ....

Whilst this might be true, you have to remember that most people retiring soon will not have just 30 years NI. Indeed most had to have 39 until recently and some even bought years to make up. Yet there is no differentiation made between people who paid maybe ten years plus longer than those on the current full qualification.

So, if, say, the £107 were awarded to people with 30 years, and £144 to those with 35 years post 2017 AND something inbetween to those with 30+ years retiring pre 2017 then your argument would work.

As it is you have a situation where someone can retire in 2016 with 30 years and get £107, someone can retire in 2017 with 35 years and get £144 BUT someone retiring with 42 years in 2016 will still only get £107.

Nothing is taking account of that factor and it is one reason why those coming up to retirement before 2017 are reasonably upset. I think some kind of phasing in between £107 and £144 based on having paid more years than necessary now should be considered to ease this frustration.

Bear in mind that far from having known for years about what they would get and retiring years earlier than future pensioners etc etc as often noted on here the following is true. Especially of women.

The age that they qualify for a pension has in the past decade or so been pushed back at least twice for those retiring between now and 2017. The closer you get to that date the further and faster back.

The number of qualifying years has changed as well.

Add to this the disasterous fall in interest rates and consequent amounts gained from savings/pensions that effect in much the most devastating manner those who are retiring over this current several year period - way more so than anyone before recent times or (hopefully) after 2017.

Then you see that the perceived advantages and fairness to people reaching retirement between now and 2017 is less apparent than some suggest.

wakeupalarm

jamesd wrote: »

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.

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.

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

The other bigger winners are those who were contracted out and accumulated little s2p, but now have the opportunity to increase their state pension to the full single tier rate of £144 AND have their contracted out pension as well. Many of these will be public sector workers in final salary schemes who already have fantastic pensions and will be able to get even more from the state at the expense of younger generations.

Jaycee_Dove

wakeupalarm wrote: »

The other bigger winners are those who were contracted out and accumulated little s2p, but now have the opportunity to increase their state pension to the full single tier rate of £144 AND have their contracted out pension as well. Many of these will be public sector workers in final salary schemes who already have fantastic pensions and will be able to get even more from the state at the expense of younger generations.

As well as at the expense of their contemporary low paid self employed who are funding this pay out to the rich as well.

wakeupalarm

Jaycee_Dove wrote: »

As it is you have a situation where someone can retire in 2016 with 30 years and get £107, someone can retire in 2017 with 35 years and get £144 BUT someone retiring with 42 years in 2016 will still only get £107.

Nothing is taking account of that factor and it is one reason why those coming up to retirement before 2017 are reasonably upset. I think some kind of phasing in between £107 and £144 based on having paid more years than necessary now should be considered to ease this frustration.

If someone retiring in 2016 has 42 years they will more then likely have built up an amount of s2p that combined with the basic £107 will take them above the £144. The younger generation retiring after 2017 is denied the opportunity to build up anything above £144. That is why the younger generations will be worse off in the long run under the new scheme.

Jack_Griffin

wakeupalarm wrote: »

If someone retiring in 2016 has 42 years they will more then likely have built up an amount of s2p that combined with the basic £107 will take them above the £144. The younger generation retiring after 2017 is denied the opportunity to build up anything above £144. That is why the younger generations will be worse off in the long run under the new scheme.

true enough, however the reforms are also bringing in a mandatory privately funded additional pension for all employees. So what the government are doing is getting rid of a burden on themselves which they don't think they can afford. Swapping a publically funded SP2 for a private pension.

What will these pensions turn out like, they are unlikely to be Indexed like SP2, they will almost inevitably be much worse value IMHO. I know my pension funds are with the rubbish annuity rates prevailing today!

taktikback

Don't forget that there will be a contracted out reduction so, things balance out. For example, If you have 16 years contracted out and 16 years contracted in - under the new rules you would get £144 plus still get your contracted out pension - at say £2pw +£32, so say £176. If you were contracted in for 32 years - you would get 107 plus £64 = £171. (because existing sums > £144 would still be honoured)

Question is (and I'm not sure about this) what happens if you are contracted out for 32 years? In theory, you would have £64 reduction from the nominal £144 (would that be allowed?) but you would have a contracted out pension sum of £64 - so status quo - however, you would be able to get credit for years after 2017 to bring you back closer to the £144 foundation amount - another 12 (if retiring 2029) would get you back to £104 plus your £64 making you £168 - slightly worse off.

But if you could only get reduced back to the £107 basic pension level for your contracted out years, then potentially, you could make it back to £131 plus your contracted out pension of £64 - gives you £195 - a biggish win.

I now need to lay down in a dark room...