UK Flat Rate Pension Plans – Winners and Losers

Flat Rate Pension Reforms

Eagerly awaited later today are the finer details and calculations regarding the Flat rate Pension proposal by the coalition government in the UK. This will follow a series of cuts and overhauls over recent weeks as well as the early stages and bills of future intended cuts and budgeting revisions.

The Government will outline their changes to state pension calculation rules and entitlement which they claim to be far simpler and easily manageable. Indeed they do seem to be simpler and more easily manageable. The finer details however will be where the complications arise and also display how middle working England will surely be hardest hit as the new rules come into play.

The Flat-rate state pension is expected to begin in 2017 and will be the end of the means-tested top-up rules which can be applied to the current pension calculations. It will also be the beginnings of the end of “contracting out” which enables employees and employers to fund private schemes instead of the government state pension.

The weekly pension payment is set to be £144 plus inflation rises between now and 2017.

The current full state pension is £107.45 a week, but can be topped up to £142.70 with pension credit (second pension contracted out instalment addition).

The initial pension plans were mentioned in the Queen’s Speech at Christmas. We are now ready for them today to be unleashed in full.


Awaiting Answers

The revised flat rate pension will be paid only to new pensioners retiring on or after 6 April, 2017. Awaiting todays release is confirmation that the millions of existing pensioners and those who qualify before 2017 will continue to receive their entitlement under the current system.

Also is the question of how other received benefits will be worked into the current system.


Pension Age Rise

Importantly to be announced is the rising of the pension age for both men and women to the age of 66 by 2020, with further plans for this to increase to 67 between 2026 and 2028. This is not a big issue for men who retire at 65 anyway. However for ladies who can currently all retire at age 60 if they wish it is a different story. The “shameful situation” as described by the Government in which women who take time out to care for their children suffer in retirement due to their lack of NI contributions and hence reduced entitlement will now be entitled to receive the same flat rate pension as everyone else. To receive this benefit they will also be expected to work an additional 7 years in line with men to fund the gap. The Governments task is to convincingly sell a plan to everybody to pay in additional funds over a longer period to receive a small increase in their state entitlement. Many 40-50 somethings especially ladies are already beginning to realize the change and what will be expected of them. The news has not been well received.



Who will Benefit?

Those who will benefit include the self-employed as they tend to get a lower state pension than regular employees.

Also those unemployed who have been out of work for 10 years+ and in receipt of long term government benefits will be entitled to the same flat rate of pension. This is as SERPS (Second Contracted out element) which is only eligible to those in employment with earnings will be discontinued. Contracting into the Government scheme in full for EVERYONE working will become compulsory.

Many are already seeing these plans a kneejerk reaction to a Government problems. Britain’s total debt equals 900% of the economy. When you add this to UK’s financial sector debt, government debt, personal debt and corporate debts already accrued the UK is looking at a similar circumstance to the level of debt of the Weimar Republic.



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