Partner Article

State pension ?simplification? glosses over losers

The reform of the current state pension regime to the new flat rate in 2017 is superficially a simplification, but the transitional rules will be with us for a very long time, and people won’t really know where they stand until they reach state pension age. In theory, anyone joining the workforce now will expect to earn a simple state pension of £144 per week in 2013 money, but we all know that pensions policy will change a dozen more times before those people even begin to approach retirement.

The abolition of contracting out has been long overdue – it was a hangover from the days when the state pension was invented and some workers were already in superannuation schemes – but it means that many millions of pensioners will not get the headline £144 per week. A teacher whose whole career had been spent in a public sector contracted-out pension scheme will get the current level of state pension, not £144, but at least the TPS is a guaranteed, inflation-proofed replacement. Those workers who contracted out into money-purchase personal pensions will also lose some of the £144 for each contracted out year but will have no such guarantee. Simplification trumps fairness yet again (just as with the new child benefit charge).

Even those who stayed in S2P should worry. S2P entitlements already earned will be ‘protected’, but not inflation-proofed above CPI. Since the whole reform is intended marginally to cut the cost of the future state pension scheme, the state pensions of higher earners have to suffer to provide the funding.

The only clear winners are those in lifelong self-employment, who never had S2P entitlement and will gain by the uplift from £107.45 to £144 per week. But the White Paper gives no commitment about future levels of the Class 2 NICs.

It’s still going to be complex, for many years to come.

This was posted in Bdaily's Members' News section by Baker Tilly .