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    • Former MSE Helen
    • By Former MSE Helen 15th Aug 14, 9:19 AM
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    Former MSE Helen
    MSE News: Guest Comment: What you need to know about the new State Pension
    • #1
    • 15th Aug 14, 9:19 AM
    MSE News: Guest Comment: What you need to know about the new State Pension 15th Aug 14 at 9:19 AM
    There's 600 days to go until significant reforms are introduced to the State Pension ...

    Read the full story:

    Guest Comment: What you need to know about the new State Pension




    Click reply below to discuss. If you haven’t already, join the forum to reply. If you aren’t sure how it all works, read our New to Forum? Intro Guide.

    Last edited by Former MSE Helen; 15-08-2014 at 9:21 AM.
Page 1
    • hugheskevi
    • By hugheskevi 15th Aug 14, 10:28 AM
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    hugheskevi
    • #2
    • 15th Aug 14, 10:28 AM
    • #2
    • 15th Aug 14, 10:28 AM
    Reasonable enough article, but rather biased in places. I am in favour of the reforms, but the full outcomes of the changes should be presented, not just one side.

    Pensioners are already benefiting from the Government's triple lock commitment in this Parliament – the State Pension has risen each year by whichever is the highest out of earnings, prices or 2.5%. The basic state pension is worth 440 a year more in 2014/15 than if it had been up-rated by earnings since the start of the Parliament.
    But less than if the previous uprating system had not been changed and remained linked to RPI.

    Thanks to this policy, the basic State Pension today is at its most generous relative to average earnings than at any time since 1992.
    Due not to generosity, but to the lack of earnings growth leading to prices (and hence State Pension indexation) to be higher than earnings for a sustained period.

    One thing that won't change is the contributory nature of the system. In other words, whether or not a person is entitled to the full rate will continue to depend upon them having made sufficient National Insurance contributions during their working life.
    Rather misleading, given the contributory nature is being significantly watered down, and removed once 35 qualifying years is reached unlike the current system, which is a significant change.

    What makes the new system fairer is that there is better recognition through National Insurance credits of the valuable social contribution women make, for example, if they take time out of work to look after elderly parents.
    Fairer is a very subjective term and best avoided. Many would consider it fairer if those who contributed the most received the most. It is also misleading to intimate women are gainers from the reform - whilst historically women did not have full pension records that is no longer the case. Many women will be worse off from the reforms.

    In the longer term, we estimate that over 80% of people will get the full level of the new State Pension. But over the next few years, because of those transitional arrangements we are putting in place to ensure that everyone's previous contributions are reflected, different people will get different amounts.
    So in the longer term, the contributory nature of the system is removed/capped for the vast majority of people, and it is of little difference whether someone has worked or not, nor how much they have contributed in determining how much they get.

    Generally, this [being contracted-out] means that you have paid lower National Insurance contributions at some point and paid that money you saved into a workplace or personal pension instead.

    During the time you were paying those lower National Insurance contributions, you weren't paying in to the Government additional State Pension, also known as SERPS or State Second Pension. So your new State Pension may reflect this.
    Which aside from the requirement to pay the saving into a pension is the same as for self-employed people who also paid lower National Insurance and in return didn't build-up any additional State Pension. Yet self-employed won't get any deduction applied.

    5. Who gains?

    Key gainers under the changes are those people who would under the current system have low levels of additional State Pension.

    Often these people will have taken time out of work in the past to look after children or care for people with disabilities, and before 2002 they didn't receive protection through National Insurance credits for the additional State Pension.

    This will also benefit many low-income workers and the self-employed.
    It would be helpful to detail that the measure leads to significant expenditure reductions in the long-run, so the section would be more appropriately headed "Who loses?"

    I'd argue that those who have decent amount of contracted-out deserve a mention as probable gainers. Public sector workers also gain, as well as being contracted-out, their public service pension arrangements will not be changed due to contracting-out abolition (private sector DB schemes are permitted to offset the reduction in contracted-out rebates). They will pay higher National Insurance contributions though.

    In the interests of balance, it should be pointed out that those who work most their lives are significant losers from the reform. The amount lost will be greater than the amount gained, meaning there is both cutting and redistribution going on as a result of the reform.

    The reference to 2002 seems irrelevant in the context of the reforms.
    Last edited by hugheskevi; 15-08-2014 at 10:37 AM.
    • Cyberman60
    • By Cyberman60 15th Aug 14, 10:45 AM
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    Cyberman60
    • #3
    • 15th Aug 14, 10:45 AM
    • #3
    • 15th Aug 14, 10:45 AM
    As I understand it the Guaranteed Minimum Pension (GMP) which DB schemes are compelled to provide via the contracting out of SERPS (State Earnings Related Pension Scheme) will no longer be index-linked under the new scheme. If true then this is going to hit some people very hard, but is also immoral IMO.
    • kidmugsy
    • By kidmugsy 15th Aug 14, 11:26 AM
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    kidmugsy
    • #4
    • 15th Aug 14, 11:26 AM
    • #4
    • 15th Aug 14, 11:26 AM
    Due not to generosity
    Originally posted by hugheskevi
    Nothing done by a government should ever be describes as generous because it's not their money they're spending. It's mine.
    • RichandJ
    • By RichandJ 15th Aug 14, 11:54 AM
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    RichandJ
    • #5
    • 15th Aug 14, 11:54 AM
    • #5
    • 15th Aug 14, 11:54 AM
    Nothing done by a government should ever be describes as generous because it's not their money they're spending. It's mine.
    Originally posted by kidmugsy
    Indeed. Going OT significantly but I've never understood references to "cost to the exchequer", it's not their money in the first place.
    It only takes one tree to make a thousand matches, it only takes one match to burn a thousand trees. As well, the cars are all passing me, bright lights are flashing me.

    Johnny Was. Once.

    Why did he think "systolic" ?
    • JezR
    • By JezR 15th Aug 14, 11:54 AM
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    JezR
    • #6
    • 15th Aug 14, 11:54 AM
    • #6
    • 15th Aug 14, 11:54 AM
    Whereas the basic pension used to rise with RPI, there was no such commitment made to the additional pensions. Under the previous government there was one year when these had no rise applied at all, and others where the increase was below RPI. This was sneaked through each year in the Budget by only announcing the RPI rise of the basic pension verbally in the speech with the details of any rise applied additional pensions being only referred to quietly in the small print documents.
    • hugheskevi
    • By hugheskevi 15th Aug 14, 12:20 PM
    • 2,395 Posts
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    hugheskevi
    • #7
    • 15th Aug 14, 12:20 PM
    • #7
    • 15th Aug 14, 12:20 PM
    Whereas the basic pension used to rise with RPI, there was no such commitment made to the additional pensions.
    RPI applied to both, but the Basic State Pension was often increased by more than RPI, and also had a commitment to increase by at least 2.5% (to avoid a repeat of the adverse media around the 75p increase from many years ago) regardless of the change in RPI.

    Under the previous government there was one year when these had no rise applied at all
    That was because the change in Sep-Sep RPI was negative, so additional pension had nil uprating. It was actually a very good year for recipients, as its value increased in real (RPI) terms unlike all previous years where it simply maintained its RPI purchasing power. Basic State Pension increased by 2.5% in line with the commitment given.
    • Pincher
    • By Pincher 15th Aug 14, 12:34 PM
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    Pincher
    • #8
    • 15th Aug 14, 12:34 PM
    • #8
    • 15th Aug 14, 12:34 PM
    I wish they wouldn't call it "new" State Pension.


    I have 17 years to go before I qualify for state pension, and they are bound to fiddle with it again, and it's going to be another NEW state pension.


    Call it State Pension V2.0, OAP Wonga 2016, anything but NEW state pension.
    • Butterfly Brain
    • By Butterfly Brain 15th Aug 14, 2:10 PM
    • 8,736 Posts
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    Butterfly Brain
    • #9
    • 15th Aug 14, 2:10 PM
    • #9
    • 15th Aug 14, 2:10 PM
    Nothing the selfserving politicians in this coalition has been done for the benefit of the people of this country. This is a con and we are being forced to work longer for one of the lowest pensions in Europe
    Blessed are the cracked for they are the ones that let in the light
    C.R.A.P R.O.L.L.Z. Member #35 Butterfly Brain + OH - Foraging Fixers
    Not Buying it 2015!
    • JezR
    • By JezR 15th Aug 14, 2:16 PM
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    JezR
    Whatever the precise circumstances were on a year-by-year basis there has been a regular differentiation between the uprating of the 'basic' pension compared with additional, thus eroding the supposed 'earnings related' component of the total pension. Of course this persists today with the additional pension having a CPI valorisation, which has often been less than that one of the other conditions in the 'triple-lock' applied to the basic.

    One thing not mentioned can affect people who have pension contributions in other countries with a reciprocal arrangement - hitherto the additional pension has been disregarded in the calculation partitioning pensions between countries concerned and paid out on top. Now that the differentiation has been abolished it will go into the calculation.
    • saver861
    • By saver861 15th Aug 14, 3:49 PM
    • 1,378 Posts
    • 800 Thanks
    saver861
    I think I read elsewhere that the new 'benefits' to women only apply from 1986 - thus I stand to be corrected but if I am correct it will omit many.
    • michaels
    • By michaels 15th Aug 14, 8:40 PM
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    michaels
    So all my SERPS/S2P payments will get me precisely nothing whereas had I contracted out for 10 years I would be able to gain a pension from the contracted out amount and still easily qualify for the full 35 years to get the full state pension given the ever increasing retirement age

    At what point does deciding not to honour commitments made in return for specific payments become theft. If a private sector company had taken premiums and then unilaterally decided not to pay out then they would rightly have been prosecuted.
    Last edited by michaels; 15-08-2014 at 8:42 PM.
    Cool heads and compromise
    • jem16
    • By jem16 15th Aug 14, 9:09 PM
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    jem16
    So all my SERPS/S2P payments will get me precisely nothing whereas had I contracted out for 10 years I would be able to gain a pension from the contracted out amount and still easily qualify for the full 35 years to get the full state pension given the ever increasing retirement age
    Originally posted by michaels
    If at April 2016, your current entitlement to basic state pension + SERPS/S2P is higher than your entitlement under the new rules, then you will get the higher of the two.
  • Uptonspring
    Missing out - again !
    I am a woman born in 1955.I have seen my state pension age rise from 60 to 65, and then 66.
    I thought that having 30 years of NI contributions was enough to get me a full state pension - but OH NO ! they have moved the goalposts again, and I now have to have 35 years of contributions.
    I cannot keep up with all these changes in a short time, and I am sure that as I reach my state pension age in 2021, they will have moved the goalposts again, and maybe again.
    • p00hsticks
    • By p00hsticks 16th Aug 14, 1:26 AM
    • 7,367 Posts
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    p00hsticks
    I am a woman born in 1955.I have seen my state pension age rise from 60 to 65, and then 66.
    I thought that having 30 years of NI contributions was enough to get me a full state pension - but OH NO ! they have moved the goalposts again, and I now have to have 35 years of contributions.
    Originally posted by Uptonspring
    During the majority of your working life (up to 2010) , you will have expected to only get a full state pension if you had 39 years NI contributions (five less than a man, who needed 44) so this is one area where you are actually better off compared with the first 55 years of your life.
    • BoxerfanUK
    • By BoxerfanUK 16th Aug 14, 6:54 AM
    • 537 Posts
    • 435 Thanks
    BoxerfanUK
    I'd argue that those who have decent amount of contracted-out deserve a mention as probable gainers. Public sector workers also gain, as well as being contracted-out, their public service pension arrangements will not be changed due to contracting-out abolition (private sector DB schemes are permitted to offset the reduction in contracted-out rebates). They will pay higher National Insurance contributions though.
    Originally posted by hugheskevi
    Hugheskevi. Can you explain what you mean, as I thought being contracted out meant not getting the higher state pension!

    I started work at 16 and at 24 joined the Civil Service. I took formal retirement in February at age 55 and was therefore contracted out for 31 years. I'm currently re-employed with the same employer in a much lower grade and plan to fully retire @ age 59 when I reach 45/80 in Classic, so I will only have just over 8 years NI credits when I wasn't contracted out from age 16 to 24 and don't plan to work from age 59 until I can draw state OAP @ age 66.

    I'm also led to believe that when I claim my state pension my CS pension is reduced although I have no idea how much it will reduce by... or why!!
    • Oblivion
    • By Oblivion 16th Aug 14, 8:34 AM
    • 19,247 Posts
    • 58,472 Thanks
    Oblivion
    "What you need to know about the new State Pension" Hah!

    What I know about the state pension is that Pension Services don't answer correspondence! Three times I've written concerning an apparent error in my pension payment and every letter has been ignored.

    Steve Webb, you need to get your department sorted out, it's a shambles.
    ... Dave
    Happily retired and enjoying my 13th year of leisure

    I am cleverly disguised as a responsible adult.

    Bring me sunshine in your smile
    • hugheskevi
    • By hugheskevi 16th Aug 14, 8:51 AM
    • 2,395 Posts
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    hugheskevi
    Hugheskevi. Can you explain what you mean, as I thought being contracted out meant not getting the higher state pension!
    That is correct in terms of calculating your pension under the 2016 system on day 1, but after that more State Pension can be accrued to get to the full amount.

    Take two people aged 36 in 2016 who qualified for State Pension every year from age 16 who are identical in every way, except that one was contracted in all their life whilst the other was contracted out (gloss over the fact contracting-out into a Defined Contribution scheme ended in 2012, that isn't material for the example).

    In 2016, their entitlement under the new system is calculated. The contracted out person would get roughly the amount of pension they are entitled to under the existing system, around 75 per week (113.80 times (20 qualifying years divided by the required 30 years)). The contracted-in person would get more due to being contracted-in and having additional pension, lets say they have 120 p/w.

    After the 2016 system starts, it will take the contracted-in person 7 years (so age 43) until they qualify for the full amount after which they stop accruing any further pension (but still pay full National Insurance). It will take the contracted-out person 18 years (so age 54) before they cease to accrue more pension.

    At retirement, they both receive the same pension, but the contracted-out person has a separate contracted-out pension pot which may well be worth several tens of thousands of pounds, and also paid lower National Insurance contributions in their lifetime due to being contracted-out. By contracting-out, they are far better off than the person who remained contracted-in.

    In your own personal circumstances, you may wish to consider paying Class 2 self-employed NI contributions after you leave employment, or Class 3 voluntary contributions although they are far more expensive, if you don't qualify for the full single tier amount when you leave employment (as seems likely).
    Last edited by hugheskevi; 16-08-2014 at 8:55 AM.
    • Pincher
    • By Pincher 16th Aug 14, 9:56 AM
    • 6,516 Posts
    • 2,491 Thanks
    Pincher
    Nominal Factor
    There was this really early Peter Ustinov movie, in which he played this computer man who likes to confusing people by using the phrase "Always adjust for the nominal factor".


    I wish they would just come clean, and say they can't afford the state pension, and apply a universal discount on what you were going to get. This should apply to all the civil service pensions as well. So lets say we can afford to pay out 100bilion in 2014, but only 85billion for 2015. They announce a 15% reduction from 6th April 2015, and all the active civil service pensions and personal state pensions are reduced by 15% for that year.


    The money you saved in your company or personal pension system is not affected.


    I think I have just saved 1billion and more on-going costs on pension reform, IT infrastructure, staff re-training, etc. A knighthood please.
    • jem16
    • By jem16 16th Aug 14, 10:02 AM
    • 18,737 Posts
    • 11,594 Thanks
    jem16
    I am a woman born in 1955.I have seen my state pension age rise from 60 to 65, and then 66.

    I cannot keep up with all these changes in a short time, and I am sure that as I reach my state pension age in 2021, they will have moved the goalposts again, and maybe again.
    Originally posted by Uptonspring
    The change from 60 to 65 has been known since 1995, almost 20 years so hardly a short time.
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