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Flat rate pension to be introduced in 2015/16

by Michelle McGagh on Apr 01, 2011 at 08:09

Flat rate pension to be introduced in 2015/16

The introduction of a flat rate pension could happen in 2015 or 2016 and be worth at least £155 a week to pensioners.

According to the BBC, the details of the flat rate pension will be unveiled next week. The reforms will provide a boost to the current state pension which is £97.65 a week but topped up to £132.60. Couples receive £202.40 a week.

The flat rate pension was expected to be £140 per week but the BBC said it could increase in line with inflation. Last week’s Budget confirmed the pension would be available for new pensioners.

The BBC said: ‘It is assumed that inflation-linked increases will take the means tested guarantee up to around £155 by the middle years of this decade.’

‘The government may decide to bring in the new single pension at a slightly higher level.’

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18 comments so far. Why not have your say?

Paul Barnard

Apr 01, 2011 at 09:09

Hmm. So, assuming someone had a best 20 years average earnings of £20,000 they would have received the SRP + £96 pw = £194. This was then altered to 20% of career average, so lets take that average down to £15,000 and they would get £158 p.w.

We now have an improved system which will "give" people £155 p.w. in 5 years, equivalent to £120 in 2012 allowiing for 5% inflation.

So generous, the Con-Dems.

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ALAN EASTON

Apr 01, 2011 at 09:14

What was the point of recommending people to contract in when S2P is now going to be abolished and the new flat rate pension will apply to all new retirees?

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Henry Tapper

Apr 01, 2011 at 09:19

Alan, the DWP will apply what they call a COD (Contracting Out Deduction)- I'm quite sure that those with protected rights pots will not get a free annuity on top of the full flat rate pension!

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Tony Laverick

Apr 01, 2011 at 09:24

Less a deduction for contracting out but if you paid the lower Class 2 & 4 NI rates, you get the higher pension? Lack of joined up thinking.

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Kevin Neil

Apr 01, 2011 at 09:32

Paul,

You're missing the point! There are many, many people who do not fit your assumption - the self-employed and the majority of women (only 52% of the population in the latter category I believe) who do not receive anything like £155 per week. They more likely receive no more than £97.65 pw (or even less if a women or with a less than full basic NI record) and have to rely on a confusing and expensive system of claiming pension credits to get to the MIG of £132pw.

The whole aim of this policy is to provide a basic level of income in retirement that everyone can receive, that will be taxable for those who have made their own provision and are wealthy, but protects the poorer sections of society from the minefield of applying for benefits when all the evidence shows that many are too proud to!

The current system does in fact guarantee a minimum income of £132 pw but in a way that is massively expensive and complex to administer and incredibly inefficient. The new system will do away with many of these problems, even allowing for the fact that there will be a changeover period as current retirees progress through the current system.

The vast majority of people are in favour of this, and most IFAs bombard these forums with complaints whenever a Govt introduces more complexity into financial affairs - why are you complaining against a piece of true simplification?

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Jon Lowson

Apr 01, 2011 at 09:42

The whole idea of a second tier State Pension Scheme has been an absolute farce. The sooner they scrap it and bring in a Universal State Pension Benefits, the better.

The State Pension is meant to provide a minimum standard of living for all pensioners. For lots of reasons, we are all well aware of, this is becoming increasingly difficult and is putting huge amounts of financial pressure on the country's budget. Paying higher earnings related pensions and contracting out payments is not helping balance these future pensions liabilities.

In other words, we are trying to pay higher benefits to some people, when we can't even afford the basic benefits and some of the poorest pensioners also lose out because they were prudent enough to make some extra savings for their retirement.

It seems to me that those expecting higher Earnings Related State Pensions are going to have to accept less, so that the poorest in our society can have a decent standard of living without all that means testing nonsense.

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Gavmiester

Apr 01, 2011 at 09:43

Kevin Neil- Absolutely agree, proper pension simplification at last. The benefit disincentive to saving in a pension is removed and women are no longer penalised in retirement for having and looking after children. This is fantastic news and the IFA community should embrace it rather than complaining.

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Jonathan Kirby1

Apr 01, 2011 at 09:55

As someone born in May 1950 I have a vested interest.

So if they introduce after my 65th, even by a few days I won't get anything extra, just like I have got nothing for all my Class 4 NI?

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Silverwood

Apr 01, 2011 at 09:57

I agree with the comments above re simplification - however, my understanding is that clients that chose not to contract back in to SERPS or S2P because they wanted flexibility of when to take benefits or did not trust the government and preferred their own potentially smaller pot but with tax free cash possibilities will now be better off than those clients that believed the illustrations and perceived recommended advice to contract back in.

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Kevin Rothwell

Apr 01, 2011 at 10:18

To Henry and Tony,

My understanding is there will be no contracting out deduction, as the new flat rate pension is proposed to be based on residency in the UK, not NI contributions, whether they were contracted in,out, or class 2 or 4 rates. If NI joins with income tax and becomes a thing of the past, the government will not be wanting to employ people to do CODs. I think it is time to stop talking about NI contributions.

Jon, I whole heartedly agree with your comments about the poorest in our society.

Silverwood, yes that looks to be the case as I guess those little contracting out personal pensions will effectively be classed as having made your own provision for retirement. No system is ever perfect.

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ALAN EASTON

Apr 01, 2011 at 10:19

Silverwood, I agree with you which is the point I was making earlier that in hindsight, it would appear that many people will be worse off because they contracted in

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Man in Black

Apr 01, 2011 at 10:39

@Jon and others

The other point to remember about the current system is that (a) some pensioners are just too decent to claim; and (b) some pensioner are just too confused to claim.

Either way, you have (older) people who lived prudent lives now living in squalor whilst some of the (younger) professional welfare 'clients' who have never worked get by quite comfortably.

On the 2nd point, there is also a whole army of pen-pushers to help pensioners complete the 9 million page application form - that's a cost that would be better spent on the pension itself.

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Andrew Baker

Apr 01, 2011 at 10:43

It's crazy and divisive as it appears to be right now: Those who contracted out, using NI refunds to build up a private pensions will now be rewarded with extra State pension as well whilst those who stayed put may actually end up with less than their NI contributions would have paid if the existing system prevailed.

In addition, the self-employed who had no means of earning extra State pension and made their own provision, will be penalised if they retire before 2015/16 (if that's the eventual bag-bang date) by receiving the old flat-rate pension, and those self-employed who didn't bother to make provision will be rewarded if they don't reach retirement age until after the new arrangement comes in.

This arbitrary inequity is enough on its own to ensure this current rag-tag motley crew of an alliance vessel will be chucked out at the next election. Add in the student fraternity that they have alienated too, and it's an odds-on certainty.

Funny ... the gainers and non-losers will be those in the middle age groups around the ages of those in so-called power who are dreaming up and putting in place these crazy policies. Are they so daft and blinkered that they do not realise that not everyone is their age? (That's rhetorical: yes, they are that daft and blinkered.)

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Andrew Baker

Apr 01, 2011 at 10:48

bag-bang = big-bang; apologies for typo.

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Ron Jones

Apr 01, 2011 at 11:25

I wished they would for school leavers now have a new retirement age of over 70, set it at an affordable age, and pay the today equivalent of £250 per week.

Move this retirement age for new school leavers in line with their life expectancy at outset only, ie review it every 1-5 years.

Then simply allow another additional option for all personal or occupational pension schemes, an option which allows them to 'bridge' their income from the day they choose to retire to the state pension age.

This way a £100k fund would enable a person to retire 8 years before the new state pension age, as long as they were content with £250 pension per week when their state pension is due.

The more they save in their pension the earlier they can go, but all of them can be sure anything they save will give them some benefit.

This would benefit the masses, the people who have large funds could use them as they do now.

This is a simple solution to the current issues where so many of the public have decided not to save for their future as they cannot see the benefit of doing so.

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Terence O'Halloran

Apr 01, 2011 at 14:02

National Insurance , including SERPS, is an insurance scheme run by the state. Benefits are not awarded they are purchased. Equitable Life strove for simplicity ; look where it got them.

The NI fund is in surplus to the tune of £31 billion at the last count. The benefits that have been purchased since 1978 should be paid, 'as advertised'. The FSA went to gret lengths and expense producing a brochure guiding individuals to contract back into the state scheme!

To all intents and purposes the SERPS regime was, and remains, no different to NEST. Are the present 'let's simplify everything' contributers going to condone the distribution of NEST in this arbitary way when they get into their sixties? It has every possibility of its money being nationalised.

Be very careful, there are fundemental principles that will substancially reduce the income of SERPS beneficiaries yet to retire. I for one would not be party to that. max pension , with SERPS, is over £250 per week on £844 per week earnings. Simplification throws their financial planning to the wind.

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Kevin Rothwell

Apr 01, 2011 at 16:54

Hi Terence,

re your last comment : 250 p.w and 844.p.w

I don't think so that it throws their planning to the wind.

Just had lunch with one of the people you talk about. He always paid into SERPS.

The bigger their SERPS pot is the bigger they earned during their lifetime, and the better opportunity I guess they had to make extra provision.

This person aged about 75 gets about £1000 p.m in total on his state pension but is also in receipt of about £70,000 p.a in private pensions.

I know quite a few like this.

I agree with the proposals and again say as Jon Lowson said earlier, that it is for the benefit of those less fortunate, and reinforced by Man in Black in his comment of "professional welfare clients".

It is so true that decent people do not want to go " cap in hand", whereas I can, and do observe that we are now into 3 generations of non workers, who's schooling now is only in how to not work, and how to claim everything they can from the state.

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Mae

Apr 04, 2011 at 08:38

I retired last year and now receive the basic state pension after paying in for 44 years.

Someone retiring in 2015/16 will now receive much more after paying in for possibly only 30 years.

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