How will you fare under the new State Pension?

Since George Osborne took over the reigns as Chancellor, his aims have been clear with regards to pensions – simplify and create a process that ensures less reliance on the state going forward. Auto Enrolment has been hailed a success and now boasts over 6 million employees who have enrolled in a pension saving scheme, ensuring one major box is ticked in getting the nation to think about their pension plans.

But what about the self-employed?  The announcement of a new Lifetime ISA, due to be launched next year, encourages younger generations and the self employed to start putting money to one side with the promise of contributions from the government. This is another tick in the box in helping reduce reliance on the state for future generations and encouraging a savings culture amongst the young.

For now though, who are the winners and losers with the new state pension? The new ‘flat rate’ or ‘single tier’ state pension aims to simplify the system so that everyone is treated the same. This means whether you were in paid employment or a stay-at-home Mum, you will be treated equally. The institute of fiscal studies claims that women will gain on average £5.20 per week in additional state pension income at the state pension age, and those who have been self-employed for at least 10 years will gain an average of £7.50 per week. An increase is always welcomed, but will it make much difference to your weekly budget?

Currently, existing pensioners receive the basic state pension (£120 per week) plus top ups such as the second state pension for those that qualify. Going forward, the new state pension will be paid to men born after 6 April 1950 and women born after 6 April 1953. To qualify for any state pension under the new system, individuals will need to have 10 years of National Insurance contributions but to receive the full amount, of £155.65, they will need to have 35 qualifying years. Some will lose out if they paid more into a workplace pension and less in National Insurance contributions. Again, we pose the question – will the current amount of £155.65 suffice?

With the new state pension and the removal of the state second pension, around 11.4 million younger workers will receive less compared to the old system. It is anticipated that by 2050, about half of retirees will get more, more specifically those born before 1980, whilst those born after 1980 will receive less.

The message here is clear – contributing towards your pension, either through Auto Enrolment or a private scheme removes any uncertainty about the state pension going forward.

If you have any questions on pensions we would be more than happy to discuss this topic with you. Our Hove and Brighton based Independent Financial Advisors are experts in pension planning and can be contacted on [email protected] or call 01273 208813.

This article was originally published on Thursday, April 14, 2016 – 13:57

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