Pension changes help mums who have taken a career break

Women who have taken time out of their career to raise children and the self employed are set to be the big winners in changes to the state pension announced today.

For new pensions from 2017, the Government plans to introduce a new flat-rate pension of £144 a week, plus inflation increases between now and 2017.
The current basic state pension is £107.45 a week which can be topped up by a second state pension or a means-tested pension credit to £142.70.

The Government says the aim is to simplify the existing system in England, Scotland and Wales. The new flat-rate system applies to anyone who works, claims unemployment benefits, cares for children aged 12 or under or for sick or disabled adults over a 35-year period. Those who have fewer qualifying years will get less.
The change will help people with intermittent work patterns, periods of low earnings and the self-employed who do not currently pay enough National Insurance contributions throughout their working life to qualify for the second top-up state pension.

Those on final salary pension schemes who have opted out of the state pension will also now qualify for the state pension, but will have to pay increased NI contributions. Their contributions had been lowered due to them opting out of the state pension.

People who are likely to lose out are those born after 1970, mainly because they will have to work longer to qualify. They will need to work at least 35 years to qualify for the full state pension and those who have worked less than 10 years will not get anything.

The age at which people qualify for the state pension is rising to 66 for both men and women by 2020, and is likely to increase to 67 between 2026 and 2028.

Simpler system

The National Pensioners’ Convention denounced the changes and said they would not apply to many existing pensioners, only to those claiming pensions from 2017, plus they would mean younger people would need to work longer for potentially less pension.
Dot Gibson, NPC general secretary, said: “The White Paper offers nothing to existing pensioners and leaves many of them to struggle on lower pensions and a complicated means-testing system. The worst affected will be around 5m older women who don’t have a pension anywhere near £144 a week and would clearly benefit if they were included in the new arrangements, but look like they are going to miss out. This will only add insult to injury to millions who have already made a contribution to our society but are still living in poverty.”
“The outlook for future generations of pensioners is even worse. They are being asked to pay an extra five years’ worth of National Insurance contributions, work longer before they can retire and end up with less than they can get today. At the moment you only need to contribute for 30 years in order to get a full state pension – and if you do, you can get £150 a week when you retire at 65. What the government is trying to sell is a plan for people to pay in for 35 years, get £144 a week and have to wait at least until 68 before they can collect it. No-one should be taken in by what is little more than a con trick.”
However, the Chartered Institute of Personnel and Development welcomed the plans, which it said could encourage more workers to contribute to private pension schemes by making the standard of living they can expect from the state pension much clearer to see.

Charles Cotton, rewards adviser at the CIPD, said: “The zero-sum game of picking marginal winners and losers from the new flat-rate pension misses the point. This is a long-term decision, which has the real potential to bring about a step-change for the better in the retirement income of Britain’s employees. By creating a simple, easy to understand baseline pension, it will become a lot easier for employers and others to explain and encourage more workers to invest more in pensions savings to boost retirement incomes closer to the levels most would aspire to. This should also help contribute to driving up the quality of workplace pensions. Without the simplicity of a flat-rate pension to explain what life on the state pension alone looks like, it has been difficult for the providers of good workplace pensions to use them as a competitive advantage to attract and retain the most talented employees. This change offers the prospect of changing that situation.
“We recognise that some employees that still enjoy defined benefit schemes, especially those in the public sector, will have to pay more as they will pay higher national insurance contributions, but such schemes are still generous and affected individuals will also benefit from a higher basic state pension. Employers operating defined benefit plans will also have to contribute a bit more as they will no longer be eligible for a lower national insurance contribution charge, but the benefits of the changes should help firms better communicate the advantages of their pension schemes to recruit, retain and motivate talent.”

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