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

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A gold egg in the grass
Profile photo of Harry Rose Harry Rose Editor, Which? magazine
Comments 68

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?

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?

Comments
68
malcolm r says:
22 January 2013

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 says:
22 January 2013

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 says:
22 January 2013

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 says:
22 January 2013

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 says:
22 January 2013

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 says:
22 January 2013

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

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Harry Rose says:
23 January 2013

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 says:
4 February 2013

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 says:
4 February 2013

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 says:
4 February 2013

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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Bob Moody says:
19 November 2014

As I understand, the system at the moment is unfair as those with the foresight to pay into private pension or investment schemes wii not receive additional state pension. Against those who have avoided work or investing for their future.
The new sytem will benefit all regardless of means testing so that you benefit fully from your private pension pot.
What concerns me is that my and my wifes monetary plans are wrecked by the fact she was born in 1955 and with previously only 3 years to retirement at 60, has now 6 years added, It is too late now to compensate in any way, The retirement date change should have been ramped up more slowly to allow people to adjust.

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John Ward says:
30 November 2014

I have a lot sympathy for people caught in the pension age escalator trap; it could have been handled better with a more measured transition. It has impacted on some women more severely and a modicum of relief has been given in belated recognition. Nevertheless, it has, as Bob says, thrown many people’s retirement planning into great uncertainty; it’s one of those “if we knew then what we know now we wouldn’t have done what we did” situations and it was to a large extent avoidable.

The imperative to adjust the state pension system to correspond to greater longevity and a rising population was not recognised soon enough; alternatively, it was recognisd but politicians funked it when it came to making the necessary decisions. There were also assumptions made about the accumulation of private wealth, the returns on annuities, and the extent of independent life assurance which have not borne fruit.

The issue of fairness or justice is always bound to crop up when considering welfare payments. People who have made their full contributions throughout their working lives and have drawn very little back from the state, and who have also made substantial contributions towards their future well-being through occupational or private pension schemes, will always feel hard done by when they look around and see others who they feel have put little in but will be taking a big slice out. I don’t think there is any rational way to assuage those feelings other than for them to feel very thankful, as well as a bit self-satisfied, that at the end of the day they still have more to live on than the other guy, albeit with little help from the state and mainly due to their own sacrifices. It used to be considered that private savings bought peace of mind; that has been tarnished by the disappointing and unpredictable returns on certain investments that people had trusted to look after them in their later years.

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rod mcalpine says:
9 March 2015

hi ive just turned 65 can i claim my state pension each month i get a payment from staffordshire county council

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PAT says:
20 September 2015

I retire in 2020 I have only paid thirty years contributions can I top up the odd five so I have paid 35years to claim full state pension is it worth doing this

(Edited by moderators: We have edited your comment as it was all written in
capital letters. Please read our commenting guidelines for more information)

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Denise says:
23 November 2015

I found out a couple of years ago that I would only receive a state pension of £12 per week. When I phoned them it is due to the fact I have been paying a married womans stamp for my entire working life which I was unaware of,I recall many many years ago they wrote to me to give me the choice of changing to a full stamp which I replied to and assumed stupid me that this had been done. I do wonder why people on benefits will receive a full pension yet not worked the required amount of years all I can say it sucks.

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