11 June 2012

New Flat Rate State Pension - Winners and Losers

The Government's plan is to replace the two existing State Pensions (Basic and State Second Pension - previously SERPS) with a flat rate one. £140 per week has been suggested. It's not law yet, but if it happens like that there will be significant winners and losers:

Winners:
  • Those only entitled to the Basic State Pension (currently £107 per week)
  • The self-employed - who pay lower National Insurance, and cannot accrue State Second Pension benefits - they would get the higher rate for no additional contribution
  • Those who were "contracted out" in the past (although it's not possible any longer) - their National Insurance contributions have been funding a private pension which they would still get, as well as the flat rate State Pension
Losers:
  • Higher earners who have been "contracted in" so their higher earnings have been accruing them a bigger State Second Pension - which they wouldn't necessarily receive if it becomes a flat rate
There's plenty of water to flow under the bridge yet, but the key message must be (as always) take as much control of your own pension arrangements as possible by contributing to a private scheme.

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