15 April 2013

Flat Rate State Pension Confusion

Although we gave our view that the new flat rate State Pension was basically a good thing (see our previous blog from January), there are still some significant unknowns about it. Here are some (thanks to Investors Chronicle).

Firstly, Pension Credit (which currently tops up a low pension income on a means-tested basis) will not exist in the new system. Some people will therefore be worse off than they would have been. Will there be any transitional protection to reduce the pain? The DWP Select Committee thinks we should know.

Secondly, under the present system you don't have to take your State Pension at SP age. You can defer it and receive a higher amount later - which is sometimes a good financial planning strategy. We don't know whether you will still be able to do this in the new system.

Thirdly, where women were relying on their husband's National Insurance contributions to give them a Basic State Pension entitlement, they will not be able to do the same with the flat rate system. Should women within 15 years of State Pension Age be allowed to retain this right, since they will not have enough time to do anything about it?

Finally, here's some key fact about the new system:
  • It comes into force on 6th April 2016
  • Men born on or after 6th April 1951 will collect their SP under the new system.
  • For women it's those born on or after 6th April 1953
  • You need 35 years of NI contribs for a full entitlement (currently 30 years)

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