Graduates face longer wait for state pension under reform plan
A two-tier state pension is being considered by the government, under which workers will receive a full provision of £155.65 for 45 years of national insurance contributions.
The controversial plans would be a blow for graduates, who would be forced to work longer than those in blue-collar jobs.
If the plans are given the green light graduates face working until they are almost 70. In contrast, those who leave school at 18 will be able to start drawing on the state pension at 63.
Others, including stay-at-home parents, carers and those suffering from long-term illness, would have their entitlements protected.
According to The Sunday Times, Damian Green, the work and pensions secretary, has backed the reform plans.
Early state pension access
Later this week Sir John Cridland, the former head of the CBI, will publish a report into the state pension age. The review will consider changes in life expectancy, wider changes in society and ways to help ensure the state pension remains sustainable.
Ahead of the publication (which is expected on 14 October), Hargreaves Lansdown has written to the review. The broker has proposed early access to the state pension based on life expectancy.
Hargreaves Lansdown's proposals include early access to state pension from age 60 for those in poor health, with the capital sum discounted to take account of early access.
Tom McPhail, head of retirement policy at Hargreaves Lansdown, says: “The state pension age needs to rise, in order to reflect general improvements in life expectancy across the population, because otherwise the whole scheme will eventually become unsustainably expensive.
“However, we also need to accommodate those with poor life expectancy. We could vary the state pension based on gender, post code, occupation or even ethnicity, but these are both arbitrary and in some cases illegal because they are discriminatory.
“A fairer and more efficient approach would be to use the underwriting expertise of specialist annuity providers, to target higher payouts to those individuals who have a lower life expectancy, whatever the reason for it.”
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.