Confused about state-pension and all the changes

oliveoil99

With the new flat-rate pension of £144 coming in 2016 how will in the Queens Speech with a 35% increase in state-pension going up to £155 a week change things. Also for pension-credit purposes at a single person needing £145.20p to live on would this £155 mean no more pension-credits. Is this a way to stop people getting any top-ups? So confused. :~(((((

jamesd

You will not be affected at all if your state pension age comes before the change. What you get in that case will not go up or down as a result of the change.

The change eliminates the Additional State Pension that takes a minimum wage worker's state pension up from the Basic State Pension level to about £190 a week and replaces it with the £144 flat rate for both. It's a cut of about a quarter for someone who works for minimum wage for a full working life and a bigger cut for those who make more. People who are entitled to more at the time of the change don't lose what they have built up but no longer accumulate any more Additional State Pension. Under current rules the Additional State pension part continues to increase for as many years as you work before getting to state pension age. Under the new rules nothing increases after 35 years except for some transitional protection situations, like people who were in contracted out pensions, notably most public sector workers.

It is only an increase of 35% for someone who has no Additional State Pension entitlement at all, which means for someone who did no PAYE paid work at all during their life. That means that people on means tested benefits for life, those who spend their life looking after children or the disabled and the self-employed will get that increase while those in paid employment for a full working life get a cut instead.

A young person today on minimum wage for their working life will need to make private pension contributions that accumulate a pension pot of about £80,000 to make up for what's being taken away from them by this change.

Just think of it as a boost to the state pensions for the people who don't work much at the expense of those who do and you'll understand it fairly well. Or perhaps better: a gift to the seldom employed retiring soon that is being paid for by their children and grandchildren.

FatherAbraham

margaretclare wrote: »

I think the basic idea was this: it's known that many people don't like claiming pension credit because it's means-tested, is seen as humiliating, there are still a few people who're too proud to claim what they see as 'charity'. There have been moves to increase the basic pension to a level which is paid as a right and not have to be claimed and means-tested.

I think the basic idea was this: having a really low (£110/week) basic state pension, topped up by a means-tested pension credit meant that low-to-middle income earners who saved for retirement were cutting their own throats, because for every pound of retirement income they saved up for, they lost 97p of pensions credit bennies, while those who squandered their money instead of saving it were much better off (they'd been able to have their cake and eat it).

This was so blatently unfair to those who tried to provide for themselves that pensions credit had to be scrapped.

Warmest regards,
FA

Thicko2

jamesd wrote: »

You will not be affected at all if your state pension age comes before the change. What you get in that case will not go up or down as a result of the change.

The change eliminates the Additional State Pension that takes a minimum wage worker's state pension up from the Basic State Pension level to about £190 a week and replaces it with the £144 flat rate for both. It's a cut of about a quarter for someone who works for minimum wage for a full working life and a bigger cut for those who make more. People who are entitled to more at the time of the change don't lose what they have built up but no longer accumulate any more Additional State Pension. Under current rules the Additional State pension part continues to increase for as many years as you work before getting to state pension age. Under the new rules nothing increases after 35 years except for some transitional protection situations, like people who were in contracted out pensions, notably most public sector workers.

It is only an increase of 35% for someone who has no Additional State Pension entitlement at all, which means for someone who did no PAYE paid work at all during their life. That means that people on means tested benefits for life, those who spend their life looking after children or the disabled and the self-employed will get that increase while those in paid employment for a full working life get a cut instead.

A young person today on minimum wage for their working life will need to make private pension contributions that accumulate a pension pot of about £80,000 to make up for what's being taken away from them by this change.

Just think of it as a boost to the state pensions for the people who don't work much at the expense of those who do and you'll understand it fairly well. Or perhaps better: a gift to the seldom employed retiring soon that is being paid for by their children and grandchildren.

An excellent summary.

The simple headlines of higher pensions for all are so far away from the truth.

I hope NI levels for self employed are risen signficantly to pay for this largesse.

Probably will also kill the few final salary schemes left with the hike in NI for employers of over 3% as well.

FatherAbraham

Thicko2 wrote: »

Probably will also kill the few final salary schemes left with the hike in NI for employers of over 3% as well.

Of course, you mean private-sector defined-benefit schemes. The public-sector ones will go on as before, except that the members are now going to be another £2000/year better off.

Warmest regards,
FA

oliveoil99

When is this 35% supposed to happen? Is this for new pensioners or everyone?

Thicko2

FatherAbraham wrote: »

Of course, you mean private-sector defined-benefit schemes. The public-sector ones will go on as before, except that the members are now going to be another £2000/year better off.

Warmest regards,
FA

To be fair we will have to pay increased NI, but agreed its a good deal.

Still after 5 years of pay freezes, pension contributions doubled, Working life extended, RPI to CPI, it's nice to have a very small upside.

If I live to 87, I might benefit to the tune of £20k from it, with the other factors above will probably cost me 20 times that figure.

jamesd

It is supposed to come in around 2016. It will only be for new pensioners, those who reach state pension age after the change.

bilbo51

FatherAbraham wrote: »

The public-sector ones will go on as before, except that the members are now going to be another £2000/year better off.

I need you to explain the mechanics of that to me. I'll be truly thrilled if my wife manages to pocket an additional two grand a year when she retires... Please tell me how she can access this largesse. :beer:

kidmugsy

Presumably the changes can't be treated as definitive until the relevant Bill is passed - I assume that that will be the Finance Bill. So we should know by, what, July?

elantan

James i read what you have written and think i understand it .. can i just check my personal circumstances with you if you dont mind.

i have paid NI for all the years i have worked ( currently 24 as i am 40 years old) at no time did i contract out ( think i have that right) when i have had my forecast through ( i get one every year from DWP) it shows basic plus additional state pension.

if i understand you correctly, i will no longer get any more additional state pension, but i havnt lost out on the additional state pension i currently have? so i will get £144 ( at 2016 rate) plus the amount i have accrued that is currently my second state pension per week?

is this right?

my husband who was contracted out will get a basic state pension plus a very small accrued second pension ( if i remember right everyone had to opt back in a few years ago) his second state pension is tiny compared to mine ( less that £10 a week) so he will get the £144 plus the tiny bit ( approx £10) a week.

is this right ?