The Government has proposed significant changes to the State Pension which will affect most individuals. Some people may be better off, but many will see their overall state pension entitlement reduced.
In its simplest form, the single tier state pension proposal will introduce a basic state pension of £144 per week (in today’s terms) for new retirees reaching state pension age after April 2017.
The current basic state pension is £107 per week. However, many individuals also receive additional state pension from accrual within the graduated pension, State Earnings Related Pension Scheme (SERPS) and State Second Pension (S2P), which can significantly increase the actual state pension paid. For higher earners where salary related accrual has also been made the state pension could currently be as much as £250 per week.
Currently entitlement to the full basic state pension requires 30 years National Insurance Contributions (NICs). Under the changes this is set to increase to 35 years, where no entitlement to the state pension is given with less than 10 years NICs and entitlement is on a pro rata basis where NICs have been made for between 10 and 35 years.
The state pension age is due to increase to 66 by 2020 and 67 between 2026 and 2028. If individuals want to take control of their retirement and cease work prior to their state pension age then the “income gap” to state pension age needs to be filled.
With so many changes to the State Pension amount and the age at which individuals will be entitled to state benefits, making personal provision for retirement becomes ever more important. This means planning in advance and making appropriate savings.
For further advice and information on retirement planning and saving for your future contact our highly qualified Chartered Financial Planners on 01772 729742.