New flat-rate state pension announced
A new flat-rate pension is expected to come into place from April 2017.
The new, single-tier pension would be £144 per week, with anyone who had paid a minimum of 35 years of national insurance contributions to be eligible to receive the benefit. It is expected that it would rise each year in line with prices, earnings or 2.5%, whichever is higher.
Pensions minister Steve Webb said today he wanted the government to provide a "single, simple, decent state pension".
The Pensions Policy Institute today welcomed the announcement by Webb, saying the current pension system was too complex. At the moment individuals can qualify for a basic state pension of £107.45 per week and may be eligible for top-up payments, which could take the weekly income to £142.70 or £160.
The flat-rate pension will be paid to new pensioners reaching state pension age from 6 April 2017.
Keep it simple
Head of retirement planning at AXA, Andy Zanelli, says the new flat rate should be "seen as a fantastic benefit to many" and hoped it would send a much needed message to the public that "pensions should be simple to understand and something they should be actively engaged with".
Tom McPhail, head of pensions research at Hargreaves Lansdown, agrees that the reform was "vital" and says it "lays the foundation to rebuild the UK's retirement savings". He adds: "It will simplify the state pension for millions of today's workers, allowing them to plan their retirement with more certainty."
To receive the same annuity income of £144 (£7,488 a year), McPhail points out a 65-year-old would need a pension pot of more than £200,000.
This article was written for our sister website Money Observer
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.