State pension overhaul: What will it mean for you?

The government only unveiled plans for the introduction of a £144 a week flat rate state pension at the start of this year and originally, the radical reforms were to take effect from April 2017.

But, ahead of delivering his 2013 Budget this week, the Chancellor, George Osborne has confirmed the ‘go live’ date will now be brought forward to April 2016.

So what do the accelerated state pension reforms mean for you?

Replacing the current system

As it stands, the maximum state pension payment is £107.45 a week. And, those eligible can increase this to £142.70 a week with pension credit and the second state pension (S2P), which was formerly known as the State Earnings Related Pension Scheme or SERPS.

Plans for a new flat rate weekly pension of £144 for all, will replace and simplify this system.

But, originally set to be implemented in April 2017, the Chancellor has confirmed these changes will kick in a year earlier in April 2016.

As was always the plan, the new flat rate will increase in line with inflation between now and then.

However,for workers retiring after that date, the qualifying criteria (ie, the number of years you will need to make National Insurance Contributions or NICs) to get the full state pension, will also rise from 30 years to 35 years.

And on top of this, a minimum qualification period of 10 years will be re-introduced (for the past three years there has not been a minimum qualification period).

This means that you won’t get any amount of state pension at all unless you’ve paid NICs for at least a decade.

Winners and losers

The new flat-rate pension will be good news for the self-employed, who can only receive a maximum of £107.45 per week under the current pensions regime.

Couples could also benefit, because each partner will qualify for the flat rate as an individual, rather than receiving the current joint couple’s rate, which is less generous.

On the other hand, the fast-tracked reforms could be bad news for those who would have accumulated a state pension pot worth more than £144, for example if they receive the basic state pension, SERPS and S2P.

The National Pensioners Convention said the reforms would, “do nothing for existing pensioners, and leave millions of older people, particularly women, on pensions that are much lower than the proposed £144 a week.”

However, it’s estimated that some 80,000 women born between April 6 and July 5, 1953,  who have had their retirement age increased twice, would have been left out of the flat rate pension reforms had they arrived in April 2017 but, as the date has been brought forward, will now be included.

Will everyone be affected?

No. If you are already claiming your state pension you will continue to do so under the current system, and the changes will not affect you.
And those who currently receive more than £144 a week will continue to do so as their extra payments will be protected.

Over time, however, this arrangement will be phased out and future generations will receive just the flat rate state pension.

Anyone reaching state pension age prior to the reforms taking effect on April 6, 2016, will also not be affected.

So when can I start drawing my state pension?

This depends.

Men born before December 6, 1953 can start drawing a state pension at 65.

Women born between April 5, 1950 and December 6, 1953, can start drawing a state pension between the ages of 60 and 65.

However, these numbers will be changing over the years to come. By 2018, women born after December 1953 will have to wait until they are 65 to start drawing a state pension.

Then, between 2018 and 2020, the state pension age for both men and women will increase to 66, and by 2026, it’ll rise to 67.

The White Paper, published in January 2013, which set out the flat rate reforms recommends reviewing the age of retirement at least once during each parliament’s lifespan – in which case the above could be subject to change.

Previously-announced changes to funding social care have also been brought forward a year to April 2016, from their planned implementation date.

You can read more about this in Rachel Wait’s article, Q&A: Government social care reforms.

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