Changes to the state pension

January 23, 2015

Pensions are going to be in the news a lot over the coming months. And they’ll be on our blog a lot too. That’s because there are a lot of changes afoot as a result of the Budget and it’s important that people are fully informed to make sure they’re a) prepared for retirement and b) don’t go doing anything rash with their pension pot if they’re already at that age.

One of the latest pension revelations is that new government figures are suggesting that only 45% of new pensioners will be entitled to the full, new, flat-rate state pension in the first five years of the system.

From April 2016, a new state pension is being introduced with the aim of simplifying the whole system. The new system will see a single payment of about £150 going to new pensioners, but latest figures suggest that 2 million pensioners won’t get the full amount.

But how can that be if it’s meant to be a single, flat rate?

Well, some people with private or workplace pensions are contracted out of some of the state second pension, which is being integrated into the new flat rate scheme. That means they’ll get less. Some people have a gap in their National Insurance (NI) contributions, so they’ll get less. And from April 2017, we’ll all have to work longer (35 years’ worth of NI contributions rather than 30) to qualify for the full pension. If you’ve only paid NI for a few years, you won’t qualify for the new state pension at all. Clear as mud.

The government is keen to reassure us that nobody should be worse off under the new system than they would have been under the current means-tested regime. They also acknowledge that it’s going to take a bit of transition time for the ‘simpler’ system to actually look any simpler. In the short term, some people might get less than they expect.

This serves to highlight the importance of taking the time to really plan for your retirement. If you’re getting close to retirement age, make sure you have a full state pension forecast so you can see exactly what you’re likely to get and, if necessary, plan alternative provisions.

It also highlights the importance for those who are further from retirement age to get planning as early as possible. The face of the state pensions could easily change several times in the intervening years and if you don’t have alternative plans in place, you may come unstuck.

Our advice: come and speak to us, or someone like us (there’s no one quite like us!), who can talk you through all the latest changes and options as they apply to your unique situation. We can help you get a plan in place to make sure you have the money you need for the retirement you want, without an over-reliance on the state pension.

This article is for general use only and is not intended to address your particular requirements. It should not be relied upon in its entirety and shall not be deemed to be or constitute advice.

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