From 6th April 2016 a new flat rate State Pension will be introduced for everyone, which is expected to be around £150 a week, depending on your National Insurance contribution record.
Why is it changing?
The government wants to introduce a simpler, fairer and more transparent system than the existing pension structure so individuals have a clearer idea of how much they will be entitled to, and therefore are more able to plan for their retirement.
What are the main changes?
- Current basic and additional pensions will be replaced by a single-tier, flat-rate State Pension.
- The level will be set in Autumn 2015 and worth more than the standard amount.
- To qualify for the full single-tier State Pension you will need at least 35 years National Insurance (NI) contributions or credits.
- To qualify for any new State Pension you will need at least 10 years of contributions.
- Those with between 10 and 34 years of contributions will receive a proportion of the pension.
- The State Pension age will increase from 66 to 67 between April 2026 and April 2028
- There will be a provision for 5-yearly reviews of the State Pension age.
- ‘Contracting out’ will end for people in defined benefit occupational schemes.
- It will be an individual entitlement, so in general there will be no special rules for people who are married or in civil partnerships, bereaved or divorced.
- Pension Credit and other means-tested benefits will continue to provide a safety net, but the savings credit element of Pension Credit will be abolished.
- The proposals are intended to be cost neutral every year – meaning that overall spending on State Pensions will not increase – so there will be winners and losers as compared to the current system.
Who will be impacted?
The new single-tier pension will only affect people reaching State Pension age from 6 April 2016 onwards.
- women born on or after 6 April 1953
- men born on or after 6 April 1951.
It’s the date that you reach State Pension age that’s important – not when you start to claim your pension. However, you may be able to make top-ups.
If you are due to reach State Pension age in the first 5 years of the new system, you can ask for an estimate of your new State Pension.
While £150 a week may not seem a lot to live on, someone retiring today at age 65 would need a fund of approximately £260,000 to buy a similar inflation proofed secure income.
If you would like to review your options regarding your retirement planning please contact your Cullen Wealth consultant.
Source: Legal and General