MSE News: Government outlines flat-rate state pension

edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning
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  • It is a money saving measure, cutting off the possibility of increasing additional state pension a year earlier will save more money for the government.

    Surely most people who get a bigger pension under the new regime would anyway have been entitled to benefits to plug the gap, so the difference in that figure isn't so much, as Snowman says above, there will be some who do gain a lot, but it is not the majority.
  • edited 17 March 2013 at 1:51PM
    wakeupalarmwakeupalarm Forumite
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    edited 17 March 2013 at 1:51PM
    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.

    There is NO increase for the majority, it's a cut presented as an increase. What this new flat rate pension is doing is capping the younger generations state pension at a couple of pounds above the means tested guaranteed income level, so that they can take away free bus passes, free prescriptions, free eye tests, the winter heating allowance, the free TV license and cap nursing home fees for the rich.

    The baby boomers as always are the ones being protected from any real cuts at the expense of the younger and future generations.

    If you are 18 and earn national minimal wage and are unfortunate to not earn anything higher for the rest of your life you would have a state pension of at least £192.45 under the current system, if you earn more, than your state pension under the current system could be even higher.

    Under the flat rate pension you will have a state pension of £144 regardless, a cut of at least £48.35 per week for the rest of your life in retirement.
  • edited 17 March 2013 at 3:23PM
    srcandassrcandas Forumite
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    edited 17 March 2013 at 3:23PM
    Sorry to ask detail but my brother needs all the help he can get.

    He will not apply for anything that is means tested - fullstop. He thinks everyone in society is plotting against him :D

    He worked for a few years (let's say 10) in the county court. Probably a salary of £17000 at today's rates. He then ran a book shop (sole trader for say 6 years).

    He was then a self employed driving instructor until at 50 he became my mum's carer (8 years) until she died 2 years back.

    Being born 27/4/1951 he has been ranting to anyone who will listen that he missed out by a year.

    As he has accumulated enough years for a full state pension he assumed he would get £107.

    When I suggested that a year earlier would give him more he simply ranted (normal form of communication) that I did not understand and that moving it a year earlier did not impact him as it didn't say the birth date had moved back a year.

    He will still rant but that increase would make a lot of difference to him.

    Any thoughts? :beer:
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  • uk1uk1 Forumite
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    There are also many people that have been / are totally confused ... and thought we'd missed out on the new bigger pension because we were retiring before .... but then realise we wouldn't have got it anyway because of us having contracted out. You can't be cheated out of something you wouldn't have got .... but then I as very slow to work that out ....
  • zagfleszagfles Forumite
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    There is NO increase for the majority, it's a cut presented as an increase. What this new flat rate pension is doing is capping the younger generations state pension at a couple of pounds above the means tested guaranteed income level, so that they can take away free bus passes, free prescriptions, free eye tests, the winter heating allowance, the free TV license and cap nursing home fees for the rich.

    The baby boomers as always are the ones being protected from any real cuts at the expense of the younger and future generations.

    If you are 18 and earn national minimal wage and are unfortunate to not earn anything higher for the rest of your life you would have a state pension of at least £192.45 under the current system, if you earn more, than your state pension under the current system could be even higher.

    Under the flat rate pension you will have a state pension of £144 regardless, a cut of at least £48.35 per week for the rest of your life in retirement.
    Yes, although that assumes you work (or get credits which count towards S2P) for your entire "working life", ie from leaving school till state pension age, with no periods self-employed, unemployed or retiring before SPA.

    Also the new pension will be uprated better than S2P is now - ie using the "triple lock" whereas S2P is updated with earnings till pension age then with prices - over a lifetime this will make a significant difference.
  • hugheskevihugheskevi Forumite
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    It is a money saving measure, cutting off the possibility of increasing additional state pension a year earlier will save more money for the government.

    Surely most people who get a bigger pension under the new regime would anyway have been entitled to benefits to plug the gap, so the difference in that figure isn't so much, as Snowman says above, there will be some who do gain a lot, but it is not the majority.

    The difference in expenditure due to 1 additional year of Additional Pension accrual will be minimal, and the impact would be felt over a very long period - the difference in expenditure in 2016/17 and 2017/18 would be trivial.

    But the saving in expenditure on contracted-out rebates will be far more substantial. Much of that is just money moving around the Exchequer given the fall in Defined Benefit pension provision in the private sector. Nonetheless, there are still 1.9m private sector DB pension members so there is a saving in conrtacted-out rebate expenditure there (in the short run at least).

    Perhaps of most interest is the interaction with the new public service pension schemes. Most public sector employees will move into a new pension scheme in 2015. Would it make sense for the scheme to be contracted out for just one year? If not, then the employer contracted out rebate is again just money moving around the Exchequer, but contracting-in the scheme would lead to higher National Insurance payments for public sector workers which would be another saving to the Exchequer (in the short run at least).
  • JohnB47JohnB47 Forumite
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    srcandas wrote: »


    When I suggested that a year earlier would give him more he simply ranted (normal form of communication) that I did not understand and that moving it a year earlier did not impact him as it didn't say the birth date had moved back a year.

    I'm not sure what he meant by that. It's early days yet - who knows what the Chancellor actually means by these early statements without any detail - but I'm taking it to mean that your brother will still be eligible for state pension at age 65 and therefore he will be eligible for the 'new' state pension (for better or for worse in his case) as he will become eligible after the new arrangement comes into force (presuming 6th April 2016). Or am I missing something?

    Also, I thought the government were in a consultation phase re the new proposals. How can you consult while moving the goalposts?
  • edited 17 March 2013 at 5:31PM
    SnowManSnowMan Forumite
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    edited 17 March 2013 at 5:31PM
    srcandas wrote: »

    He worked for a few years (let's say 10) in the county court. Probably a salary of £17000 at today's rates. He then ran a book shop (sole trader for say 6 years).

    He was then a self employed driving instructor until at 50 he became my mum's carer (8 years) until she died 2 years back.

    Being born 27/4/1951 he has been ranting to anyone who will listen that he missed out by a year.

    As he has accumulated enough years for a full state pension he assumed he would get £107.

    First of all State Pension Age remains age 65 (27/4/ 2016) and this is not affected by this latest development. So that is when he will get his state pension.

    Assuming that when he ran the bookshop he was a self-employed sole trader, rather than it being set up as a company which paid him a salary on which he paid class 1 NI, then for that period, and the driving instructor period he will have accrued no state second pension or have been contracted-out. He will have got credits for qualifying years for basic state pension through paying class 2 NI (asssuming he didn't get class 2 exemption through low earnings).

    He should have got credits for qualifying years from the period of caring automatically if he received carer's allowance or if he didn't claim carer's allowance if he proactively claimed credits for qualifying years. He will have got no state second pension for this period.

    So that will leave the 10 years county court employment. If this is before 1978 it will have little affect on things. However if this 10 year period was after 1978 then it is likely he either was in a contracted-out pension scheme or will have accrued a reasonable amount of state second pension. Details of when this period was and whether he was contracted-out of the state second pension will then affect the transitional state pension calculation. Without knowing this makes it difficult to progress much further. These years will of course count as qualifying years

    One thing he should do is get a state pension forecast which will show the existing number of qualifying years and the additional SERPS accrued and may show any contracted-out deduction.

    As an example let's assume your brother was contracted-in throughout the 10 year period (which was all post 1978) and let's guess he has accrued £20pw in state second pension revalued to now. And let's assume he has at least 35 qualifying years.

    Then the calculation would look something like this. In that example your brother would have accrued £127pw under the current arrangements but would get a £17pw top-up under the new scheme. However there are so many assumptions and guesses there that the figures are completely meaningless.

    With details of an up to date state pension forecast, dates of the county court employment and whether he was contracted-in/out or a mix might be able to make a reasonable guess.
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  • FrogletFroglet 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.

    Myy husband will miss out by about 10 weeks.Because we have been careful and put some savings away plus we are already getting a small private pension we won't get pension credit.He will therefore be worse off to the tune of about £25 per week(have had a state forecast recently.) You add that up over the course of some 20 to 30 years.

    Grossly unfair.
  • If your a worker, in general, your probably going to be losing many thousands a year in reduced state pension based on this £144 flat rate. It's a right shafting. Reduce years to get a full pension to 35, get rid of additional pension entitlements in future, a good move because people will be working much more than 35 years.
    People who have been contracted out for years can now get pensions easily of £160 to £170 a week. I suppose when conversion takes place, a lot will be near to or above the flat rate, so if they are asset rich and are unemployed, they won't need to jump through hoops and sign on to get their NI credits. A lifetime of savings in something like NEST may go towards making up the shortfall. One point, I cannot see the government keen on giving too much pension tax relief which they are unlikely to get back at retirement. I can see the lump sum being heavily restricted, the age at taking pensions increased and the requirement to buy a low % indexed annuity at between 68 upwards to become typical, perhaps even government backed. The old system was OK, the new one unfair on the worker, saver, who will get much less back for paying a lot in
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