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Major shake-up in state pension proposed

In recent years the Government has – rightly in my view – been increasingly concerned that people have made inadequate provisions for their old age. A combination of wanting to have it all now and rising process have made us less prudent and less willing to invest in our old age.

Employers have perforce been required to administer and now pay for Government schemes. We have had the stakeholder pension scheme and when that didn’t work, the new auto-enrolment pension scheme was created. This was implemented in October last year and will continue to bring businesses in decreasing size into its orbit over the course of the next few years. Whether that will be a successful way of tackling the problem is rather more moot, but we are where we are, as they say …

In the last few days the Government has also announced changes to the state pension. This came as a surprise to me (yes, I know they’ve talked about it before, but they’ve talked about lots of things that haven’t happened!) because I’ve always worked on the principle that by the time people of my age get to retirement there won’t be a state pension.

The Government proposes to introduce a universal flat-rate payment in England, Wales and Scotland. The weekly payment will be £144 plus inflation rises between now and 2017. It is likely to be paid only to new pensioners reaching state pension age from a date expected to be 6 April, 201. The state pension will rise in line with earnings, prices, or 2.5%, whichever is higher.

Anyone who has not paid National Insurance for at least 10 years will not qualify for a state pension. Those who have paid for fewer than 35 years will have a reduced pension in a change from the 30-year threshold introduced a few years ago.

The Government has promised that all accrued pension rights will be recognised, so the new system may have to involve some future pensioners being paid a top-up to the new flat-rate pension. This will recognise the contributions that they have already made for their state second pension and could include employees in the private and public sectors who are opted out of the state second pension because their final-salary schemes pay an equivalent benefit.

As always there are winners and losers. It’s estimated that more than six million workers would pay higher NI contributions under the shake-up, but the self-employed are likely to benefit, because they tend to get a lower state pension.

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