Pensions Overhaul – Q and A

Pensions Overhaul – Q and A

  • Posted: Jan 25, 2013
  • By:
  • Comments: 0

Pensions Overhaul – Q and A

The Government wants to replace the current state pension with a single payment

The current system

Men and women in their 60s start receiving their pension, currently worth £107.45 a week.

The exact date they start to get the payment depends on their personal situation.

Because people are living longer, the pension age has been raised and it is also being equalised – to 66 by 2020 and 67 by 2028.

To receive the full amount, you must have 30 years of contributions or credits.

The less wealthy receive an extra payment, called the Pension Credit or Minimum Income Guarantee, which is means tested.

The new system

All new pensioners from 2017 will receive a single, flat rate equal to £144-a-week in today’s money.

Anyone who retires before that will be unaffected.

The payment is set above the means test, currently £142.70.

Companies will no longer be able to contract out of the state second pension, which means workers will have to pay more National Insurance.

Workers will also need 35 years of National Insurance payments to qualify.

Those people who take time out of work, for example to raise a family or care for a relative, will receive NI credits that will contribute towards their 35 years.

Who wins?

The Government claims the changes will help women, low earners and the self-employed.

According to the Department for Work and Pensions (DWP), almost three million women currently receive a state pension worth less than £80-a-week because they have taken time out to raise children or care for a relative.

It is thought there are also around 4.2 million people who are self-employed that do not currently get a full state pension.

The changes will mean their National insurance contributions are recognised, allowing them to qualify for the new pension.

Those with savings will also be better off because these are currently factored into means-testing for pension credit.

Who loses?

The changes will only affect new pensioners from 2017 so people already in the system will not benefit.

Anyone who doesn’t pay National Insurance for 10 years will not be eligible.

Anyone with under 35 years of contributions will see their payments reduced pro rata.

Those who belong to a “contracted out” pensions scheme will pay more National Insurance.

Click here for more information about pension

Tags: ,