The Real Truth of new 'flat rate' pension (where everybody gets different amounts)

coyrls

Going back to the original article, the pension statements must include the contracted out deductions, otherwise the author would not have had access to the figures that she is using. I can see that an adjustment to those deductions may have to be made in April 2016 but I can't see that the difference would be substantial.

gadgetmind

First hit when googling for "single tier".

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181237/single-tier-pension-fact-sheet.pdf

Add "white paper" to the end and you get this.
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181229/single-tier-pension.pdf

While "flat-rate" is occasionally mentioned, it's often in quotes, and you'd have to focus on those words and ignore all of the rest of them to get the wrong end of the stick.

Here is the page for the consultation, which members of the public were welcome to respond to (I did.)

https://www.gov.uk/government/consultations/a-state-pension-for-the-21st-century

It also mentions flat rate, but makes it clear that this is a pension linked only to qualifying years, rather than to both years and earnings. Also note that a key part of the consultation was on how to be fair to those who earned pension under the old scheme, which was always going to be a challenge.

The outcome of going for the radical option of a fast move to a single tier pension, coupled with all the safeguards, is both surprising and pleasing.

Martin51

The consultation document contains the following para from a member of the public:

'Member of the Public
Ensure that no-one is discriminated against or receives less than others during the
process. Proceed with caution and ensure complete fairness.'

Unfortunately the advent of single tier does discriminate, for instance with regard to those in private sector final salary schemes who reach SPA after introduction of the new system. As has been repeatedly stated here by people such as AGarnett, Billop and me, DWP seems to think that it's ok to have losers which include those who held so-called 'protected rights' who were promised parity with SERPS given up while being contracted out. Those of us just caught in the new system will lose State-sponsored inflation protection as a result. This is completely unsatisfactory. It will be double discrimination if, as expected, those in similar schemes in the public sector will by some means be protected.

For a while before the Election I had been in touch with both Ros Altmann and Steve Webb. The latter tried to sell me a dummy by saying that, while people like me would be disappointed, we would at least benefit from a full basic State Pension which would be uprated by the triple lock. What a generous offer (not!). I did NOT expect much Additional State Pension under the old system. After all, I had my GMP equivalent. But I did not expect to have a HOLE in my company pension caused by subsidence so close to my SPA. Companies like mine were not required to uprate the pre-88 element of the GMP, so we cannot expect them to shore up this bit. So, the Government will save a bit on this.

Dr Altmann thought it unfair. So I will keep the pressure up!

jamesd

Yes, there is significant discrimination in relation to those in private and public sector final salary schemes. Because they were opted out schemes their members will be able to unfairly get payments from both the SERPs/S2P money from the pensions and also get the same again from the state pension by working enough years to increase their state pension to the full flat rate level. They will also have the opportunity to buy more flat rate pension. While a person who was not contracted out will have their pension capped at the flat rate and will gain nothing for the extra years worked.

We could solve this discrimination problem by banning the accrual of more flat rate state pension for such employees.

I also agree that the GMP issue is a problem but expect that in the case of those more than a few years from state pension age the ability to get both defined benefit and state pension when those not contracted out don't, will more than compensate for it. Those who happen to reach state pension age immediately after the flat rate comes in won't have this opportunity and could be worse off.

Martin51 wrote: »

The consultation document contains the following para from a member of the public:
'Member of the Public
Ensure that no-one is discriminated against or receives less than others during the
process. Proceed with caution and ensure complete fairness.'

That member of the public is asking for an impossible combination. To be fair it is essential that some get more than others. For example, those who paid in for only ten years should get less than those who paid in for 48 years.

greenglide

okydoky wrote: »

Well Coyrls, the lack of response perhaps confirms just how much uncertainty exists around your case, and no doubt many others.

Are you saying that you'll wait until April 2016 as once it's confirmed at that time it will be set in stone, whereas any forecast you might request before then might not be worth the paper its written on?

The reason that the forecast cannot be definite is because it relies on events which have not happened. Contributions made during the current tax year (or the lack of them) and the increase in benefits next year can affect it. The starting amount, however, calculates this one last time and sets it in stone except from increases in line with the triple lock or CPI for amounts above the nSP maximum.

To put it into context how many people have received a forecast like this and then got a drastically reduced amount when the pension is claimed? The situation is the same.

gadgetmind

They stopped calling it a "forecast" a few years ago and changed the name to "statement" for exactly this reason.

coyrls

greenglide wrote: »

The reason that the forecast cannot be definite is because it relies on events which have not happened. Contributions made during the current tax year (or the lack of them) and the increase in benefits next year can affect it. The starting amount, however, calculates this one last time and sets it in stone except from increases in line with the triple lock or CPI for amounts above the nSP maximum.

To put it into context how many people have received a forecast like this and then got a drastically reduced amount when the pension is claimed? The situation is the same.

Yes, that's what I thought. Jamesd is saying that the statement doesn't include any deduction for contracted out years. If that were so there could be a drastic reduction when the pension is claimed. As I said earlier the reason that I think you're likely to be correct is that there would have been uproar under the old system if people were getting statements that were drastically reduced when they actually claimed their pension. As the calcuation under the old system hasn't changed, the new system doesn't really come into this at all, except that the final calculation will be done at April 2016 instead of when the pension is claimed.

wakeupalarm

jamesd wrote: »

Yes, there is significant discrimination in relation to those in private and public sector final salary schemes. Because they were opted out schemes their members will be able to unfairly get payments from both the SERPs/S2P money from the pensions and also get the same again from the state pension by working enough years to increase their state pension to the full flat rate level. They will also have the opportunity to buy more flat rate pension. While a person who was not contracted out will have their pension capped at the flat rate and will gain nothing for the extra years worked.

We could solve this discrimination problem by banning the accrual of more flat rate state pension for such employees.

I also agree that the GMP issue is a problem but expect that in the case of those more than a few years from state pension age the ability to get both defined benefit and state pension when those not contracted out don't, will more than compensate for it. Those who happen to reach state pension age immediately after the flat rate comes in won't have this opportunity and could be worse off.

That member of the public is asking for an impossible combination. To be fair it is essential that some get more than others. For example, those who paid in for only ten years should get less than those who paid in for 48 years.

It also discriminates against the younger generation, in fact virtually everyone (in 2016) under the age of 46 and most under the age of 50
will be capped at the new pension amount. They will not be able to increase their state pension even though they may continue to work for another 20-25 years unlike the current state pension where you can continue to earn up to £2.80 per week s2p for each year worked.

gadgetmind

wakeupalarm wrote: »

It also discriminates against the younger generation

There is a degree of wealth distribution to it. Those on higher salaries won't rack up as much SP, but those on lower salaries and the self employed will do better. This will allow means testing for pension top ups to be removed, which in turn means that there will be more incentive for people to enrol in DC pensions.

Overall, I view it as a great improvement, and TBH utterly essential and long overdue.

agarnett

gadgetmind wrote: »

Overall, I view it as a great improvement, and TBH utterly essential and long overdue.

I don't think you or anyone else is yet in a position to make such a sweeping statement. A fe short posts back you were apologist for the government by implying that anyone who thought they were getting a state pension forecast when asking for such from the state, would actually receive one. It's been called a state pension statement for some time is what you urged, dismissing the fact that it was likely to be pretty useless by the time SPa was reached. Its less than 5 years since they dropped the term, but they still call themselves "Future Pension Centre" and not "This is how it looks today but we know it might be completely different at your SPa Centre"

For a smart, you seem remarkably blinkered.

As someone that kicked DB schemes into touch some time ago and has been merrily self-investing in all that spare time you tell us about, you have completely disregarded how the government has been on the one hand:

Urging people to consider carefully before they cash in private sector DB schemes i.e. putting the brake on it

and on the other

sneakily tipping off its corporate friends that they may start devaluing pension promises in their onerous DB schemes and giving less cash to those who really do now wish to follow your lead, gadgetmind, and take a CETV to start controlling their own pension destiny, because it is all beginning to look remarkably flakey even with good old DB schemes where employers still seem to be going great guns. I am talking the GMP Savings line in recent CETVs (which actually is a line of detail which probably never makes it to most members eyes)

Are you one of those king of the castle types who runs across the moat first, hauls up your colours and makes sure the drawbridge is hauled up too?

Out here I dare suggest we are not impressed with what those safely in castles think is fair, utterly essential or TBH overdue unless you come out and engage a little more than this.