Category Archives: Retirement Funding

State pension reform

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It must be remembered that there is no “pension fund” which pays the state pensions, the system purely relies on the National Insurance contributions of those in work to pay for the state pensions of those retired.  Changing demographics mean that there are going to be fewer people of working age and more pensioners.  Added to that, increased longevity due to improvements in medical science means that we are all going to live longer as well.  The state pension system is a time bomb that everyone knows is going to explode at some stage but politically no one will do more than tinker with the system as it is easier to put it off for the “next lot” to deal with.

A number of changes are, however, taking place to state pension from next April to help to address these issues and I thought it would be a good idea to cover off some of them to help you understand what is happening.  Some of these changes have been announced for sometime; with others, the information is only now trickling out.

Pension ages
The most widely publicised change is that from next April, the State Pension age (SPa) for women moving from 60 to 65 to fall in line with men’s SPa.  Those women born after 6 April 1950 will see their SPa increase gradually to bring it in line with the SPa for men by 2020.  this change is being made to equalise retirement ages for men and women (you didn’t really think that the government would go the other way and reduce male SPa did you?).

They have also announced that from 2024, the SPa (for both men and women) will increase to 66, from 2034 it will increase to 67 and from 2044 to 68.   For more information on individuals actual SPa, please refer to the calculator on The Pension Service’s website.

Qualifying years
Currently to qualify for the full basic State Pension, one has had to have paid NI contributions at least 44 years (men) or 39 years (women) and for some people not in work, credits have been applied.  In the past some credits have been automatically paid to those claiming Child Benefit or Income Support, if you have Attendance Allowance or Disability Living Allowances, you must formally claim these credits.

From next April the qualifying period for the full SPa is reducing to 30 years.  This means that many more people will qualify for the full State Pension in the future.  If you are unsure the level of your pension you have built to date, you can get a forecast either by registering online, telephoning 0845 300 0168, or completing form BR19 (either Google and download, or we hold copies and can supply these on request).  The pension service was not providing forecasts last year however they are now back to full capacity.

State Second Pension (formerly SERPS)
There are plans in place to change the State second pension to a flat rate scheme rather than it being based on an average of lifetime earnings as currently.  This will simplify the system and could improve benefits for some.  The time frame for this change has yet to be set but we are told that it is likely to be 2012.

Other Changes
The minimum entitlement age for other pensioner benefits such as the Winter Fuel Payments and Pension Credit will increase in line with increasing SPa.  The good news is that they tell us that they have no plans (yet) to increase some of the concessionary benefits that everyone is entitled to at age 60; eye test and prescription charge exemptions and concessionary travel are amongst those retained.

The government has announced its intention to have State Pension increases revert to being set in line with earnings rather than prices by 2015, however, no firm date has been set for this to happen and we shall have to wait to see if this pledge is honoured.

Whilst our advisers have a working knowledge of state benefits, we do not profess this to be a specialist field of expertise for us.  Should you have any questions about the issues raised above, please contact us and we shall either answer them for you or point you in the direction of expert sources of information for more complex questions.  Much more information about the State Pension scheme is available online on the direct.gov.uk pensions website.

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Pension Protection Fund

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You may have seen coverage recently in the press relating to a relatively new initiative known as the Pension Protection Fund (PPF). The scheme is designed to compensate members of final salary (defined benefit) schemes who may lose out if their employer becomes insolvent.

The PPF is essentially a form of insurance plan, which most final salary pension schemes must belong to. The pension scheme can then turn to the PPF for assistance if it does not have enough money to pay its members’ pensions.

The pension schemes themselves will contribute to the PPF by paying fees for each of their members, and consequently building a fund.

Should a pension scheme require assistance from the PPF, then members currently drawing their pension benefits will receive 100% of their original entitlement. Members who are yet to begin drawing their pension benefits will receive a maximum of 90% of their original entitlement.

Although the figures quoted appear to be generous, there are a number of other factors and limitations which need to be taken into account when calculating the level of protection offered to an individual. It has recently been illustrated that some members yet to draw their benefits may receive as little as 32% of their original entitlement.

In this connection we are urging any of our clients who have doubts about the stability of their employer or pension fund to contact us and arrange for a review to be carried out.

You should also be aware that when a scheme is taken on by the PPF, the ability to transfer your benefits out are lost. This will result in you being limited to the compensation available under the PPF scheme.

Obviously there is no way we can predict which schemes will need to rely on the PPF, but at least you will be in a position to make a more informed decision, if you act now!