UK State Pensions changes - do they affect you?

User Written by Paul Dodd on September 05, 2014.

UK State Pensions changes - do they affect you?

Millions of over-50s due a UK state pension have been in limbo over the last few years, waiting to hear how much they will receive when they retire, however the wait is almost over. Ever since the announcement of pension reforms in October 2010 promising a simplified, flat-rate state pension there have been question marks for many regarding their entitlements. The figure of £155 a week has been bandied about for anyone with 35 years of National Insurance contributions but there was confusion over whether those who ‘contracted out’ of the top-up system and therefore contributed less, would still receive the full amount.

The pensions department have said that their über-calculator, capable of processing age, working history and National Insurance records to give a personalised pension forecast for any individual will be ready in the next few days. They are expecting a deluge of enquiries over the coming month from those anxious to clarify their situation, particularly those over 50 and approaching retirement age. If you would like to get hold of your forecast, you can contact them via this link.

Those already receiving state pensions will continue under the old, means-tested system for the duration of their lives with earnings-related boosters where relevant, however, the new calculations will affect anyone reaching pensionable age - 63 for women, 65 for men - after 6th April 2016. Many will benefit from the new system: younger savers will have a precise idea of what they will receive, women who would have received paltry amounts under the old system will be better off and the self-employed will get a fairer deal. However the DWP has been criticised of creating a generational ‘apartheid’ for maintaining two different systems depending on when you retire.

It has become clear in the last few months that the inequality is not as great as at first feared given that huge numbers of retirees will not get the full amount of the flat-rate pension, at least in the early years under the new system. This has been the source of much debate in the UK and the pensions minister, Steve Webb, has even held his hands up and admitted to oversimplifying how the new system will work.

In particular, he has been criticised for not making it clear that those contracting out of earnings-related top-ups such as Serps and S2P could receive significantly less than the much-touted £155. Just how much less is still not clear as there is no single formula for the calculation according to the Department of Work and Pensions who blame the significant differences in pensions received by different retirees on the numerous “tweaks and reforms” pensions have been subjected to over many decades. In one simulation provided by the DWP, the difference in pension received for someone contracting out for just 3 years compared to a full 35 years came to £75 per week!

This example, along with the time taken to produce this all-singing, all-dancing pensions calculator is evidence, if any is needed, that the so-called simplication of the pensions system is anything but simple!

Paul Dodd

Paul Dodd

Posted on September 05, 2014 in Pensions.