State pension shake-up: the not-so-golden years?

by , Senior Money Researcher Money 14 January 2013
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Today, the government announced the state pension will be simplified, with retirees from 2017 receiving a flat rate of up to £144 in today’s money. Do you think these proposals could affect your retirement plans?

A gold egg in the grass

So what will £144 look like by 2017? With likely inflation taken into account, this should come to around £162 by the time the flat-rate pension is introduced.

At the moment, the full weekly state pension for a single person is £107.45. But this can also be topped up if you factor in pension credits and the state second pension – both of which will be scrapped under the new rules. But if you want to know how to calculate the state pension you’ll receive when you hit retirement age, it’s quite a convoluted process.

The winners and losers

The government’s new proposals will introduce a flat-rate state pension: one amount that’ll apply to everyone who meets the criteria. To receive the full amount after 2017, you will need to have clocked up 35 years of National Insurance contributions - up from 30 years in the current system. The minimum weekly pension, based on 10 years of contributions, will be £41. As it stands, current pensioners will not be affected.

As you’d expect, these proposals will benefit some more than others. In fact, some retirees could end up worse off. However, the pensions system is so complex that simplification is still a worthy aim.

When I think about my own retirement plans, it’s hard to imagine things won’t change again before 2052. We could realistically have eight different governments between now and then: that’s an awful lot of potential tinkering with the system.

The not-so-golden years?

With an ageing population, pensions will increasingly cost more for taxpayers – who’s to say the state pension will be as we know it in 40 years time? For me, the priority is to make a regular contribution to my company pension, in order to supplement whatever I may or may not get from the state when I do retire.

Will the government’s proposals impact your retirement plans? Do you have any alternative plans in place to help you through your golden years?

59 comments

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Steamdrivenandy

As it happens I received confirmation of my State pension weekly amount this very morning. £115.42 payable from 11th January. Not sure why the 11th when I turned 65 on the 6th Jan, but doubtless there’s some convoluted bureaucratic reason.

So I get £115.42 index linked to 2017 and someone who retires in 2017 gets £144 index linked from now. That makes a 2017 retiree nearly £1500 a year better off than myself at todays values. That’s almost 25% more for no apparent reason. Gee thanks Mr Cameron. Am I the only one who feels robbed and ignored?

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jackdaww

you are certainly not the only one — see my post.

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David Barnard

To answer your comment regarding the date of payment of your state pension. The ‘Pay Day’ for payment of state pension is determined by the last two numerical digits of your National Insurance Number. 00-19 (Monday) 20-39 (Tuesday) 40-59 (Wednesday) 60-79 (Thursday) and 80-99 (Friday).

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Steamdrivenandy

But why in these days of computer systems do they even have to bother robbing 6 out of 7 pensioners of up to 6 days of their first pension payment? Surely these days they could do it more equitably or are they still on quill pens and ledgers?

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Eileen

Just don’t vote for Cameron next time

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Steamdrivenandy

Not wishing to get into a political debate here Eileen, the principle of simplifying the pension system so that people know exactly what they are getting decades in advance and it doesn’t depend on qualifying years and myriad little other bits and pieces has got to be right. As I said earlier I got my actual pension notification letter just the other day and it’s gobbldygook and trying to understand all the little add on figures is mind numbing.
However I’d like to understand why the £144 is so much more than the standard amount current pensioners are getting and why they are going to be left on smaller existing amounts when the 2017 rates come into force. That’s not been explained at all and seems unfair.
As an aside I’d also like to understand why I lose 5 days of my initial pension payment when another person born on the same day gets payment from their 65th birthday just because their NI number is a few digits different. It’s only £75 or so but it seems like legalised mugging.

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Eileen

Agree with you,so unfair but what do you expect from this government.Just don’t vote for him

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David cleary

I am an existing pensioner and receive SERPS payment, grad pension payments as well as the state pension. Will this continue under the new propsed arrangements

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Steamdrivenandy

From what I can see existing pensioners carry on as before, even after the 2017 change. Surely that means a whole heap of bureaucracy to keep the old system going when it would be better to put all on the flat rate and forget about the complexity of previous systems?

David Cleary,

My understanding is that existing pensioners and anyone who starts receiving a state pension before 2017 will carry on under current arrangements.

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malcolm r

People who have contributed to SERPS / S2P will, and should, benefit from their contributions by getting an increased pension. They have paid more in, rather than contracting out to an alternative pension source.
Saving into a fund to provide further income in addition to the State pension is essential. I would like to see the norm of public and private pension arrangements on the same basis; it is wrong that the majority fund generous final salary schemes that are not available to them. I do not suggest they are retrospectively abolished as they are a contractual benefit, but now is the time to change them for new staff – events have shown them to be quite unaffordable, taking funds that could enhance the state pension..

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john carroll

I retire in sept 2015 aged 65, my wife who has never worked or claimed benefits will be aged 61.
will I have to keep both of us on my single pension or can I claim the married couples allowance, even though my wife is only 61.

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malcolm r

John, I found the following which may be helpful.
“The term married couples’ allowance is something of a misnomer. A wife is entitled to a state pension on the same basis as her husband provided she has made the necessary national insurance (NI) contributions and has reached state pension age. Where a wife has a shortfall in her NI record, or no record at all, she can claim a state pension based on her husband contributions, of approximately 60% of his entitlement. This applies whether they are separated or not. Under the present rules the husband must have reached his state pension age and have claimed his state pension for this to happen. But from the 6 April 2010 it will be possible for a wife to claim a pension in this way, once her husband has reached the necessary age, regardless of whether or not her husband has claimed his pension.”
“A parent who takes time out of work to look after children will qualify for National Insurance credits so they will still be entitled to the full single tier pension. But they must claim or have claimed child benefit to qualify for the credit, even if they no longer receive it because their partner earns £60,000 or more.”
“It had been expected that the women’s state pension age would rise to 65 by 2020. It will now move to 65 by 2018 and then be hiked to 66 (same as men) by 2020.”

This may mean if your wife qualifies for a pension after 2017 she could get a full pension in her own right.

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linda

You say that a female state pension date is being moved to 65 by 2018, I will be 60 27/12/2013 but can can not get my state pesion till 2019 am I mistaken, but I have had this in writing I will be 65 and 2 months..

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JULIAN BARRY

I retire in 2015 and my current forecast is £169 weekly. Will this be indexed linked after the 2017 or be frozen at the 2017 level and hence gradually eroded in real terms?

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Steamdrivenandy

I don’t think anything changes as far as index linking is concerned as a result of introducing a standardised State Pension, so you’re pension should carry on just as before.

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jackdaww

am i missing something or is there an elephant in the room?

example — assuming full contribution history , no pension credits qualification , ignoring inflation.

existing pensioners and those retiring the day before the change .

pension £107.

those retiring the day after the change.

pension £144.

i have seen no mention of this seemingly obvious anomaly in the media.

nor in this which article.

am i missing something or is there an elephant in the room?

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Steamdrivenandy

See the first post, that’s what I posted about and nobody seems to have explained why the 2017 State Pension will be so much more than the current one and why those on the current one aren’t going to have theirs increased. So I’ll be 25% worse off than if I happened to reach State Pension age in 5 years time.

Oh and the explanation as to why my Pension was payable from 11th Jan and not my 65th birthday on 6th Jan. Well it seems the government chose to spread the days from which they pay pensions, which possibly seems sensible. However the Pensions Service say that the day you get it paid depends upon the last 3 digits of your NI number. So it’s really like a lottery with the numbers allocated 40 years ago when you started work. Some people get their pension from the day of their 65th birthday and others on the following day etc, right through to some people being paid from 6 days later. Now given that peoples birthdays are probably spread fairly well throughout the calendar I would’ve thought relying on paying all from their birthday would ensure a fair spread anyway.
The thing is there’s no explanation of this in the paperwork, so 6 out of 7 people will be confused by it and will probably phone to find out why. So the Pensions Service have to have enough staff to handle all those calls when the system could easily be made simpler and fairer to avoid the issue completely and even if it wasn’t changed an explanation in the paperwork would reduce the potential for queries enormously.

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malcolm r

This does appear to be the case if you qualify just for the basic state pension. If you have not contributed to S2P then you may have benefits from an employers pension scheme. However, you are no worse off than before this scheme – it just means some are better off I think.

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jackdaww

malcolm r

thanks

if i become a pensioner the day before the change and my next door neighbour becomes one the day after the change – he/she will get some £25 more than me – for nothing .

i will feel a lot worse off and very hard done by.

this anomaly will affect a VERY large number of people .

why is there no press comment – a D notice perhaps ?

what is the reasoning/logic behind it – has the pensions minister explaied?

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James Bracewell

I’m 56 and already receiving a local government pension after being made redundant last year. I don’t intend to take paid work again, but already have 36 years of NI contributions. All/most of my contributions have been on the basis of being contracted out of SERPS.

Will I get the full £144 state pension when I’m eligible in 10 years time?

If not, is there a way of making additional NI contributions to top up my state pension? How much would this cost?

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Steamdrivenandy

As I recall, providing you have enough years of contributions and you’re over 50 you won’t get any more State Pension by buying missing years. You would just be wasting your money.

However that’s under the ‘old’ rules and with these new 2017 proposals things may be about to change. It’s probably best to check it out by asking for a forecast of your State Pension. I believe that’s requestable online from the Pensions Service.

BTW the £144 is todays money, so by 2017 it’ll have been increased by inflation and by the time you get it in 2022 it’ll have increased further. And of course intervening Governments could have fiddled with it even more in the interim too.

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James Bracewell

Thanks Streamdrive Nandy, but its not quite the answer I need.

I have enough years to get a full pension even under the new 35 year rule. I don’t therefore need to by any added years.

My main question is whether I’ll get the full £144 (or whatever its value is by then) or it will be reduced because my NI contributions have been at the lower contracted out rate.

If a lower rate what is this rate likely to be (at current levels)?

Will the new system allow me to pay a top up so i can get the higher rate?

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Sophie Dog

Running pre/post 2017 schemes that create inequality can only be bad. It will fuel disatisfaction amongst a sizable group of voters.

The pre 2017 oap’s should agree not vote for any political party that allows this situation to continue. If the post 2017 oap’s supported them too, the politicians would then treat all oap’s fairly and that surely is what is really wanted.

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Eileen

I fully agree with you Sophie Dog. Lets hope all oap’s will not vote for a party that is so so unfair.I will have worked for over 35 years before 2017 and retire in 2016 and I will be getting the lower old pension rate.How can this be Fair?

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malcolm r

James Bracewell, I found this on the AgeUK website:
“Contracted out
In some instances, people will have been contracted out of the additional State Pension and will have been paying lower NI contributions, while building up a private pension instead.

If this is the case, then those people will start to build up years of single-tier State Pension from 2017 to State Pension age.

However for some people the final State Pension will be less that £144 if, for example, they had been contracted out of the additional State Pension and paying lower NI contributions for many years.”

This suggests that if you are paying into a private pension and therefore relieved of some NI, you may get less than the new full flat rate. I assume it will not be less than the current basic state pension that I believe you are currently entitled to if you are contracted out. This does not seem unreasonable.

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kleh

I am due to retire in 2020, and my latest forecast showed a pension of more than £144 as I have paid into SERPS / S2P .As this date is after 2017, does this mean my pension will be reduced? That would be a real kick in the teeth, as my retirement date was originally 2014, and has been repeatedly pushed back by the government.

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Elizabeth

Like other contributors to this discussion, I am due to reach retirement age before 2017 and get a pension of £107.

Can we DEFER our pension start date until after 2017, will we get the (increased due to deferring AND) £144 rate?

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jackdaww

i cant imagine that would be allowed.

however the whole concept of this cliff changeover is a nonsense .

we must all make our voices heard to get it changed.

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David Barnard

Has anyone noticed that although the government spread the payment of state penion payments over 5 working days each week, instead of on a common day each week, when you receive the £10 Christmas Bonus, this is paid to everyone who is entitled to it on the First Monday in December, irrespective of the state pension pay day!

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Clogs

I have 31 yrs NI contributions. Am now not working / claiming. Born in 1955 my pension date keeps moving later so careful planning of my savings to bridge the gap till pension is way out. Am now told I haven`t enough NI`s for full pension, at this later date.
My service pension I receive at present is due to go down when I`m 60, the original State Pension age, and I`m still trying to find out whether this will happen at 60 or rise in relation to the State Pension age. If it doesn`t, I wonder whether pensioner freebies like prescriptions will apply to the euthanasia pill or I`m stuffed!

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Mark

Re: the date the state pension is paid, I used to work for Age Concern (now Age UK) and this was an issue that came up all the time from many of those reaching state pension age. Why should they lose up to 6 days of their state pension just because it is paid weekly and not pro-rata? If memory serves me right, the reason is administrative – that the state pension is only paid weekly. However, you will very pleased to know that they don’t claw it back the week of your death when ‘you’ may get to keep up 6 days overpayment….. ! So the answer is to make sure your state pension age birthday falls on a state pension payday and then to die one day after receiving a weekly payment.

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Steamdrivenandy

So we’re still in the Stone Age of weekly payment are we? Surely the Pension Service use computers these days and it could easily be programmed to pay from Day 1? If they insist on archaic principles why not a few words of explanation to avoid lots of queries and the cost of handling them?

As it is HMRC send you a tax form which says you can submit online but when you find the required page it says online submission is no longer available. Now that is nonsense when all they have to do is remove the mention of online submission from the letter.

I despair.

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jackdaww

would that we could choose our birth and death dates !!

however the loss of 6 days pension – whilst undoubtedly wrong – pales into insignificance in comparison to the loss of some £25+ a week for life – which is what is proposed for existing pensioners and those retiring before the change.

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Steamdrivenandy

Oh absolutely!
Can you imagine if your retirement date is a few days before the cut-off date in 2017 and every year your get the equivalent of £1,300 less than someone who retires a few days later AND may not have as good a contribution record as you do?
I can’t say anyone has explained why the 2017 pension needs to be 25% bigger than the current one?

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malcolm r

As I understand it, it is some of those who retire after 2017 who will gain, not those who retire earlier who will lose – they will get what they knew they were entitled to. For those on only the basic pension, I also understand pension credit will increase it to near the proposed new figure? And, of course, those who paid reduced NI because they contracted out will get ther contracted-out pension as well as the state pension.

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jackdaww

i’m struggling to get my head around the logic of this argument.

so you say someone who retires in changeoverdate minus one day isnt losing anything .

another – having identical circumstances – who retires on changeoverdate plus one day is some £1300 indexed linked better off for life – for what ??.

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malcolm r

One may gain, rather than the other losing. But I also believe the number of qualifying years increases from 30 to 35, so someone who does not have sufficient after 2017 presumably does not get the full £144.
I wonder how many who qualifycurrently just for the basic state pension also qualify for pension credit to increase its value, or have, with reduced NI contributions, built up a private pension fund of some sort.
I remember when I was doing a house extension, having planned and costed it, the govt of the day then put vat on extensions – no sliding scale, just one day not, next day +17.5% (guess when my job officially began). These things are not fair if the hit you.

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jackdaww

i for one do not accept unfairness in any shape or form.

for the many pensioners – myself included – with full contribution records and not qualifed for pension credit , being born more than a day too soon means you get £1300 a year less – for life.

that is not fair or just .

it is astonishing that this blatant nonsense has not been explained and not raised any press comment.

i for one will not be just rolling over and accepting this change as ” thats the way the cookie crumbles”

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wavechange

I have not read up on this yet because I reach 65 in 2016. I retired about 16 months ago with just short of 35 years NI contributions. I have a pension through my employer but did not know that I would need to have contributed for a minimum of 35 years. Any thoughts on this Malcolm?

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malcolm r

Not pretending to be expert in this – just passing on what I’ve seen. But I assume in 2016 with 30 years NI you qualify for the full standard pension (and presumably any S2P if you are not contracted out). The 35 years I believe applies to the new pension 2017 on; i think you can purchase additional NI years that are needed and that it is cost effective.

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wavechange

Thanks Malcolm. Having had a quick look through the information available, I think you are right.

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Sophie Dog

Why are the pre/post 2017 figures (actual amounts paid) so different?

Does the UK government believe the post 2017 amount is the minimum necessary? If this is so, then the Governmment has abandoned all those people who made all the required contributions but retired before 2017?

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Steamdrivenandy

I think they’re trying to get away from a lot of highly bureaucratic ‘add-ons’ like Pension Credit’ and stuff so that administering the system becomes less confusing, less costly and more transparent. Presumably, but it’s not been explained, the larger amount sort of ‘spreads’ the add-ons across all State Pensioners from 2017. That’s all very well but it probably means that those that would’ve got the add-ons will receive less than pre 2017 pensioners and those pre 2017 that don’t get add-ons will get less than their younger brethren in exactly the same situation. The trouble is that it’s a helluva lot less at £1300 a year.
I guess that bringing all pre 2017 pensioners up the post 2017 amount would blow the whole thing out of the water financially and making the standard post 2017 pension the same as currently would bring a huge outcry from the people who get Pension Credit and other add-ons at moment.
Maybe moving everybody to somewhere between £117 and £144 a week might be the answer.

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jackdaww

“Maybe moving everybody to somewhere between £117 and £144 a week might be the answer.”

PRECISELY — thats what has to be done – and it cant be beyond the wit of the admin people to achieve it.

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malcolm r

The maximum state pension is £107.45 a week, but Pension Credit ensures that no single pensioner will get less than £142.70 a week total income.
No one can I believe opt out of paying the full National insurance contribution under the new scheme, whereas now you pay less NI if you a contributor to a private pension scheme.

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jackdaww

malcolm

not clear on this.

do you mean single as in unmarried ??

my brother is single and gets £107 – he doesnt get pension credit.

i am married and also get £107 – i dont get pension credit.

we both paid full contributions and have no other pensions.

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malcolm r

I believe there is no married couples pension, but when your wife reaches retirement age she claims her own pension.
If you have no other income then maybe you should claim pension credit?

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jackdaww

malcolm

my point was i dont see how single/married comes into it.

i have savings which preclude pensions credit.

you said ” but Pension Credit ensures that no single pensioner will get less than £142.70 ”

i dont understand that.

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malcolm r

If you have savings or any other income or benefits, then you can get an estimate of any pension credit you may be entitled to by going to this website: https://www.gov.uk/pension-credit/overview. The £142.70 a week is I understand total income from any source, so presumably interest on savings will be counted towards your total income.

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jackdaww

malcolm

thanks

i do actually know that i am not eligible for any pension credit .

your statement ” but Pension Credit ensures that no single pensioner will get less than £142.70 ”
should be qualified with ” assuming they are entitled to maximum pension credit”.

so i and many others like me will continue to get £107 for life while new pensioners after changedate will get £144 for life – on a like for like basis ignoring inflation.

i wont actually get less but those retiring after changedate will get a great deal more for life – for no reason.

do you see that as fair and just? and why does it have to be like that?

i am asking because it sounds to me – could be wrong – that you have some inside knowldege on this.

many thanks again

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malcolm r

Jackdaww, sorry, no inside information; just what I’ve gleaned as the conversation has developed – and please don’t sue me if it’s wrong!
My understanding is that the minimum income a current pensioner would receive would be £142.70 – made up of either the basic pension plus any private income (e.g. from savings interest or share dividends) or, if no private income, then pension credit would top it up. Sorry if this wasn’t clearer earlier. The above site has a calculator where you can fill in all your savings, income, benefits etc to get an estimate of any pension credit due.
I don’t know the answer to your fairness question. Two things relevant perhaps:
1. You will need, I understand, 35 years contributions instead of 30 for the full pension
2. You no longer get reduced NI contributions as you could by opting out if contributing to a private pension.
Perhaps Which? can shed more light on whether the changes are that unfair.

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jackdaww

malcolm

thanks

but again private income/ savings is not relevant -

the fortunate retiree after changedate will still get £144 even if he/she has their own income or savings of millions .

the same person before gets £107.

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malcolm r

jackdaww, I do understand your point. I was simply pointing out that no one would receive a total income of just the minimum pension. I’ve no argument with your comment.

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Eileen

Maybe we should get the SUN NEWSPAPER TO RUN A CAMPAIGN.THER ARE VERY GOOD WHEN IT COMES TO READERS CAMPAIGN.

Thanks all – an interesting and important discussion.

In my view, the complicated calculations needed to establish what someone’s pension will be under the current system, as outlined by Malcolm R, highlight the case for a simplified system.

However, there is clearly an issue with what Jackdaww refers to as a ‘cliff changeover’, where one retiree with a retirement date under the current system will end up with a significantly different state pension to someone retiring just a few days later under the proposed new rules.

It’s important to note that the proposals have so far only been outlined in a White Paper, and have yet to go through parliament, so they are by no means set in stone. At Which? Money we will monitor developments every step of the way.

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Paul Clark

I retire at the end of 2017 (December).

I get the new flat rate, £144 in today’s values.

I have paid into SERPS and my forecast total is £175

As the current system is to be scrapped, I assume I loose out £31 /week ~£1500 per year.

I will have paid 45 years if full NI.

Is this just??

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Malcolm R

Paul Clark, don’t panic – the Daily Telegraph says the following:
“Will those retiring after 2017 receive their Serps or S2P pension benefits, or is the Government going to whittle them down over time?
If you have built up an entitlement to these additional pensions you will still receive it in full. However, those who remain in the workplace after 2017 won’t earn any further benefit from the top-up schemes after this date. This means that many higher earners are likely to end up with a smaller state pension overall as a result of the changes.”
You won’t lose out.

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Paul Clark

Thanks.

I found this link after posting about the Single Tier Pension – http://www.dwp.gov.uk/docs/single-tier-pension.pdf

In it is the following:-

Individuals with a foundation amount which is more than the full level of the single-tier pension. These are likely to be older people with many qualifying years, and who have not spent significant periods contracted out of the additional State Pension. These people will receive the difference between their foundation amount and the full single-tier amount as
an extra payment on top of the full single-tier weekly amount.

So it is still not the “simple ” one bit fits all system – at least for some number of years

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