What’s the point of the pension shake-up?
Blink and you’ve missed it! The speed of change seems to have sped up, with several far-reaching proposals all coming along together. Pensions are getting the most attention, but is an overhaul really needed?
First the state pension age for women was going up to 65 in 2020, then it was brought forward to 2018. Hard on the heels of this, the age for both men and women is now set to rise to 66 in April 2020. And after that an increase to 68, or even 70, seems imminent.
At least the number of ‘qualifying years’ needed to get a full state pension has fallen, to 30 years old for both men and women. The link to earnings has been restored too, so pensioners shouldn’t ‘fall behind’ as they have done before now.
Changes to the pension system
At the moment, the basic state pension is £97.65, rising to £102.15 in April 2011. If this is your only income, and you have little or no savings, you also qualify for more money in the form of pension credit. This takes the total up to £132.60. The trouble is that this extra income is means-tested and over a million people who are eligible never claim it.
The government is looking at ways of abandoning means testing and moving to a flat-rate pension. This will cut down on bureaucracy and remove a disincentive to saving, but it’s not without its critics.
Some people have gone out of their way to build up extra state pension (through SERPS and S2P) and so would look suspiciously at a system that pays everyone exactly the same. Others have not paid enough national insurance to qualify for a full state pension – how would the new system deal with them?
Merging income tax and national insurance
It sounds great and would mean big savings for employers and government in reduced administration costs. But again, there are potential hitches. Those over 65 don’t currently pay national insurance, so would they be taxed at a lower rate? How about the self-employed or those who don’t work? Will one size fit all?
We’ll keep you up to date with changes as they happen with a special Budget Day Blog, but what do you think of the latest raft of proposals? Will the outcome be worth the upheaval? Are there alternatives that the government has overlooked?
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