Do you know about the proposed changes to the state pension? They will affect everyone who reaches state retirement age after 2017.
To understand the proposed changes and why they’re good news for many, you need to have some awareness of the existing system. Under the current rules your state pension can comprise four different elements:
- The basic state pension
- SERPs
- Graduated pension
- Second State pension.
Each has its own complex calculation and over the years has used varying basis for the calculations, where you would have to work between 30, 39 and 44 years. They’re also dependent upon your level of earnings.
On top of these benefits, pensioners may also be entitled to top-ups under the minimum income guarantee to ensure income is above a certain threshold. Historically most people who need and are entitled to this (and other benefits) don’t claim because of the complexity involved.
As you will probably appreciate, by far the biggest losers of the existing and previous rules are women and low earners. This is partly due to their earnings often being less than men’s, but also due to career breaks for bringing up families.
The new proposal is simpler and fairer for the majority. If the legislation goes ahead you will need to work for 35 years between age 16 and age 66 (rising to age 68), at which point you will be entitled to an income of £144 per week (roughly £624 per month).
This new state pension will be the same for everyone and will remove the need for claiming top-up income benefits etc. It also means that women will get a much fairer deal as they will gain a pension equal to men and in their own name too.
From a financial planning viewpoint, it is also welcome news as people will hopefully have a greater understanding of what their income will be in retirement. With greater understanding comes a willingness to plan and save. To be blunt – if you want an income of more than £624 per month, then you need to save and plan for retirement. Talk to us now!