Managing Editor
AccountingWEB.co.uk
Share this content
0
11
1581

What's your take on the flat-rate state pension?

The government announced today that a new flat-rate state pension will start in April 2017. Pensions minister Steve Webb said the new system would be “much simpler”.

The proposed change will likely see an increase in NICs for defined benefit schemes – will this result in an increase in cost for employers? How will it affect financial planning?

Is it really a step towards simplification or is it the final nail in the coffin?

Replies

Please login or register to join the discussion.

Well intentioned ....

but there is clearly trouble ahead. In principle the idea is good and brave. We need to increase the state pension provision as the generation heading towards retirement simply don't have anything put aside (and for most it is too late to start). It is also wholly unfair in the current system that those on low incomes get their's topped up via credits wheras those that saved a bit are left to fend for themselves. So, tick a good idea.

 Main problems are of course that it is not extended to existing pensioners and the funding via those on final salary schemes. The former will cause much electoral strife and claims under age discrimination presumably. The latter will cause yet another conflict with the public sector workers who muast be pretty much the only ones left in final salary schemes.

Expect 'U' turns then!

Thanks (0)
avatar
By dstickl
24th Jan 2013 19:35

Moderate Proposal that each Public Sector pensioner is capped @

Steve Holloway wrote:

but there is clearly trouble ahead. In principle the idea is good and brave. We need to increase the state pension provision as the generation heading towards retirement simply don't have anything put aside (and for most it is too late to start). It is also wholly unfair in the current system that those on low incomes get their's topped up via credits wheras those that saved a bit are left to fend for themselves. So, tick a good idea.   ... 

I fully agree, Steve, that the OAPS (Old Age Pensioners) standard state pension has been too low - especially under the last  Labour Government - and is too low now (especially when compared with other Western European monetary levels), and should be raised markedly, especially if the TV licence/free bus pass/winter fuel allowance etc are withdrawn by (in my opinion) pressure from ex-public sector OAPs on exceptionally generous additional public sector pensions.  

Steve Holloway wrote:

...    Main problems are of course that it is not extended to existing pensioners and the funding via those on final salary schemes. The former will cause much electoral strife and claims under age discrimination presumably.    ... 

Yes, the basic state pension shall just have to be raised, especially when compared with other social security benefits, because it's been too low for too long, hasn't it?

Steve Holloway wrote:

.... The latter will cause yet another conflict with the public sector workers who muast be pretty much the only ones left in final salary schemes.  ...

May I suggest a moderate proposal that, for each former Public Sector (PS) worker enjoying a PS pension, same is capped @ 10 x (ten times) the standard state pension, gross for the totality for all PS pensions, as part of "Equality and Diversity" legislation? The cap would release cash to raise the standard state pension ... 

Steve Holloway wrote:

.... Expect 'U' turns then!

 

Yep! REASON: IF there's a cap on PS pensions that is a multiple of the standard state pension, THEN some civil servants with influence shall be incentivised to raise that floor standard state pension!

Thanks (0)
avatar
By vince8
15th Jan 2013 10:01

Couple of questions

When it all kicks off I assume those already drawing state pension will keep what they have (I have a few clients already getting more than £144 per week). Those currently on basic £107 will lose out?

Women have already lost out by having their pension date moved back. A woman approaching 60 this year is having to wait until 2016 for her pension of currently £107 but in 2017 it will jump up to £144 so will she missed out again by potentially £37 per week?

Thanks (0)
avatar
24th Jan 2013 12:58

State Pension - have women lost out?

Not sure it can be reasonably argued that women have "lost out" when men of the same age are still having to wait a number of years longer until 65 to draw the same pension for which they have paid the same contributions?

As an example, my sister who is 21 months younger than me started drawing her pension last May, whereas I still have to wait until June 2014 before I can draw mine.  How is that unfair to her?

Just a thought!

 

Thanks (1)
avatar
15th Jan 2013 10:13

Compulsory savings a better idea

I would be more in favour of making people set aside a larger proportion of their income for retirement, but this is clearly a long term project and would need to be tied in with further reform of public sector pension entitlement, whereby workers contributions were more closely linked to the cost of their pensions.

Tne other possibility is abolishing lump sum payouts (whats the rationale behind those?) and ensuring people don't start drawing on their pension until they are much older (say minimum 60). Both of those would boost retirement income, but I dare say there would be practical problems.

 

Thanks (0)
avatar
15th Jan 2013 10:15

Nanny state

I have just realised my last post makes me sound like I am in favour of some sort of Nanny State. Oh god - must go and shoot myself!

Thanks (0)
avatar
By EOAKS
15th Jan 2013 10:29

Question...what to do now...

I always allocate slightly in excess of the NI Lower earnings limit to my directors and get them to pay a little NIC per year. Is that still a good idea? Or shall I not allow any salary - thus making all drawings as Dividends so the allowances can be allocated against other income e.g rental income.

 

Thanks (0)
avatar
15th Jan 2013 10:47

I agree with Steve

The principle of what they're suggesting has to be right. The state pension should be a safety net and a flat rate works best for that, sweeping away all the current complication. If people want a higher pension, then they should go private / rely on the national scheme coming in.

As always, though, the transition would create unfairness especially for all those who've paid in for a long time and might have expected more. This move would also favour the self employed so presumably there would be a move to equalise the NIC paid: perhaps abolish class 2 and align class 4 in some way with class 1? That would make class 4 horrific if it had to equate to both 'er and 'ee contributions.

Realistically, it won't happen though as it will get swept away by the next Labour government in yet another of its "let's forget all about the economics" moments.

Thanks (0)
15th Jan 2013 11:01

Salary / dividend

It looks as if this will work to the benefit of those on a low salary plus dividend package as compared to those on salary only.

In other words there seems to be little to be gained from the substantial NI contributions paid by those on high salaries.

RM

Thanks (0)
avatar
By ringi
24th Jan 2013 10:53

Yet another reason to combine NI with Income tax…
I see this change as a good move, as it removes a lot of means testing in old age.

However it also makes NI look even more like Income Tax, given that yet anther benefit will not be depend on paying NI.

Now can we remove the issue when people that did not save for a house get housing benefit, but a pensioner that owns their own home looses out for having made the effort and can be on a very low income not being able to afford repairs.

Thanks (0)
avatar
24th Jan 2013 18:01

Subtly hidden loss of dependants pension.

Following the launch of the single tier pension in the commons, The Minister Steve Webb stated in an answer: "We will honour the past. People will not build up new rights under those sorts of arrangements, but those they already have will be honoured."  However it appears that any dependents pension which may have been earned up to the introduction of the new scheme will be reduced by about £18 per week.

This is beecause under existing rules, a widow or widower will receive at least half of their deceased partners additional pension in addition to any entitlement of their own.  When the new system is brought in, those who have built up more than £144 in total state pension already, will have their existing entitlement defined as their "foundation amount" which will be converted into the new single tier pension plus a "protected payment" for excess.  The white paper indicates that surviving partners will be entitled to half of that protected payment but that means they lose half of the difference between the current basic pension and the new single tier pension ie £18 pw.

Example:  A couple due to retire shortly after the introduction of the Single Tier Pension, have both built up their own entitlement to a full basic pension of £107 and £50 per week of Serps.  So they each have a total pension of £157.  When one dies the other would receive half of their partners additional pension i.e. £25 in addition to their own pension to make a total of £182.

Under the new scheme they would receive the single tier pension of £144 plus a protected payment of £13 to provide the same total of £157 each. But when one died the survivor would only get half of the protected payment so just £6.50 to make a total of £163.50.

So it appears that the rights to a pension for their surviving partner which have already been earned will not be honoured.

Thanks (0)