MSE News: Government outlines flat-rate state pension

edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning
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  • If you worked all your life and was contracted out all your life, would you get just the basic state pension of £107?

    If you worked 30 years and was not contracted out say earning the equivalent of £15k a year? What additional pension could you expect?

    If you work 30 years and have contracted out for 5 years at a wage of £15k would you get more than £144 anyway?

    Its a complicated calculation, essentially the more you earn the better off you are, it is best to send off to HMRC for a pensions forecast, that will tell you where you are precisely, no messing!
  • bilbo51bilbo51 Forumite
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    Its a complicated calculation, essentially the more you earn the better off you are, it is best to send off to HMRC for a pensions forecast, that will tell you where you are precisely, no messing!
    It might be precise, but it usually won't be totally accurate.
  • gadgetmindgadgetmind Forumite
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    If you worked all your life and was contracted out all your life, would you get just the basic state pension of £107?

    Ahem. I think you mean "were" rather than "was". Yes, it does matter.

    Yes, your foundation will be £107.50, but you have contracted out pension pots too and also the ability to earn extra post £2017.
    If you worked 30 years and was not contracted out say earning the equivalent of £15k a year? What additional pension could you expect?
    Probably not enough to exceed the £144 foundation.
    If you work 30 years and have contracted out for 5 years at a wage of £15k would you get more than £144 anyway?
    No way to tell. When you contract out, it's down to you how you invest your pension pot. Stick it all into banks and it's wipe out, choose the right tech shares, and it's happy days, so you can't put a number on it.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • edited 27 January 2013 at 11:49PM
    jamesdjamesd Forumite
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    edited 27 January 2013 at 11:49PM
    If you worked all your life and was contracted out all your life, would you get just the basic state pension of £107?
    No. You also get earnings-related Additional State Pension based on how much you earn.
    If you worked 30 years and was not contracted out say earning the equivalent of £15k a year? What additional pension could you expect?
    Using 2012 figures, someone on at least £14,700 would get 1.70 a week for each year. For earnings between that and £40,040 there's a pro-rated additional amount that's between nothing and about £1.10 more per week, close to zero more on £15,000.
    If you work 30 years and have contracted out for 5 years at a wage of £15k would you get more than £144 anyway?
    Yes. You'd end up with at least the Basic State Pension plus 30 x £1.70 plus inflation-linked increases between now and 2017. So £107.45 + 30 x £1.70 = £158.45 before inflation adjustment. Adding four years of inflation at say 3% increases that to £178.33.

    But under the current system you don't stop accruing additional state pension after thirty years. it continues to increase for each year you work during your normal working life - from 18 to state pension age. So you can end up with more than £200 under current rules.

    Transitional protection limits how much those who have spend most of the time under the current rules can lose, they just lose out gradually because their extra earnings aren't increased with full inflation. The big losers are those who will spend most of their lives working under the new system and end up with a smaller state pension as a result.

    This is why I use "the flat rate cut to state pensions for employees" as my short description of this change: it makes those with significant work histories worse off.

    Personal pensions, paid for out of pocket, are going to be needed by workers to replace the state pension money that they are not going to get under the new system.
  • jamesd wrote: »
    Personal pensions, paid for out of pocket, are going to be needed by workers to replace the state pension money that they are not going to get under the new system.

    Hence the reasoning behind auto enrollment that's going on right now with most large companies. Whether people decide to stay in them is another question, but the facts are that we're finally moving towards a retirement plan where the prudent are rewarded for their additional pension savings, rather than penalised as they were with pensions credit.

    This is a much better state of affairs - those who want to 'live for now' can do, but won't have their pension subsidized by the rest of us who are saving like mad for retirement.
  • jamesdjamesd Forumite
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    we're finally moving towards a retirement plan where the prudent are rewarded for their additional pension savings, rather than penalised as they were with pensions credit.
    No, we aren't, this is a big move in the other direction.

    The new system largely replaces pension credit with the flat rate state pension. So instead of means tested benefits, the same group ends up with the flat rate pension. To pay for that, the state pensions for those who work are being greatly cut, with the new system making half of retirees worse off - the ones who've worked. For those retiring soon the transitional protection limits the cut but the following generations get the full effect.
    This is a much better state of affairs - those who want to 'live for now' can do, but won't have their pension subsidized by the rest of us who are saving like mad for retirement.
    The new system will cut pensions for those who work to pay for increased pensions for those who don't work. It's an increased subsidy, not a decreased one. Instead of means tested welfare payments, the subsidy money is being paid out of the pension budget.

    Even the workers on some of the lowest wages will end up worse off because they won't get more than £144, while someone working a normal working life at minimum wage would get more under the current system. This is one of the groups that is having state pension money taken from them to pay for the state pensions for those who don't work.

    The one small positive is that the non-workers can get more by paying into a private pensions. But that benefit for them is paid for by the workers, who have to pay a lot into a private pension to even get back to what they would get from the state pensions under the current system. No surprise that the politicians promoting this plan have emphasised the first part while not mentioning the rest.
  • SnowManSnowMan Forumite
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    BBC are reporting the new flat rate state pension is now proposed to be introduced in April 2016 rather than April 2017

    http://www.bbc.co.uk/news/uk-politics-21820719
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  • srcandassrcandas Forumite
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    SnowMan wrote: »
    BBC are reporting the new flat rate state pension is now proposed to be introduced in April 2016 rather than April 2017

    http://www.bbc.co.uk/news/uk-politics-21820719

    Snowman my brother will be 65 27th April 2016. Does this benefit him in the sense he will get the new £144 instead of the £107? Am I reading this right???

    He would never apply for any means tested benefit so he'll only get what is automatically given.

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  • CRISPIANNE3CRISPIANNE3 Forumite
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    Well brilliant new for some. If they do bring it forward I will miss out by 6 months. I hope that the lucky ones who enjoy the increase will lose their bus passes and free prescriptions and the heating allowance. Otherwise it is very unfair on the rest of us.
  • edited 17 March 2013 at 1:09PM
    SnowManSnowMan Forumite
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    edited 17 March 2013 at 1:09PM
    srcandas wrote: »
    Snowman my brother will be 65 27th April 2016. Does this benefit him in the sense he will get the new £144 instead of the £107? Am I reading this right???

    He would never apply for any means tested benefit so he'll only get what is automatically given.

    :beer:

    It's not as simple as that.

    It depends very much on circumstances but in probably the majority of scenarios there will be no increase in state pension because the new £144 includes existing state second pension built up and the new system guarantee has a deduction for contracted-out periods.

    They compare what you have under the old system with what you would have got under the new system at 2016 and protect the higher. But as in the majority of cases the old system is already higher there is no affect.

    However there can be scenarios where this would be an increase from £107 to £144. For example if your brother had solely been self-employed over a long working lifetime of paying class 2 national insurance then it would be the case it would increase his entitlement from £107 to £144.
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