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State Pension Age increasing

There are two elements to this:

Women

The age at which females will receive their State pension is being increased from 60 to 65 to bring it in line with the State Pension Age (SPA) for men.

This increase is being phased in gradually over a period of years with the result that women born between 5th April 1950 and 5th April 1955 will have an SPA of between 60 and 65 – all women born after 5th April 1955 will automatically have an SPA of 65.

The original intention was that this increase would be phased in over a period of years ending in April 2020.

State Pension Age increasing

There are two elements to this:

Women

The age at which females will receive their State pension is being increased from 60 to 65 to bring it in line with the State Pension Age (SPA) for men.

This increase is being phased in gradually over a period of years with the result that women born between 5th April 1950 and 5th April 1955 will have an SPA of between 60 and 65 – all women born after 5th April 1955 will automatically have an SPA of 65.

The original intention was that this increase would be phased in over a period of years ending in April 2020.

However it has recently been announced that this has been brought forward to November 2018 which means that women born after 5th April 1953 will now have to wait until they reach age 65 before they can begin to receive the State pension.

Everybody

It is the government’s intention that the State Pension Age for both men and women will increase to 66 from April 2020.

Worse still – there were proposals to increase the SPA for men and women to age 67 by 2036 and to age 68 by 2046 but the government have now announced that they are reviewing this timescale with a view to introducing these higher ages much earlier than 2036 (possibly as soon as 2024).

 

State Pension increasing to flat £140 per week for everybody

There has been speculation (not confirmed or denied by the government) that it is the intention to replace the current State pension with a Citizens Pension of £140 per week.

Qualification for this pension would be determined by years of residence in the UK rather than National Insurance contributions.

The date for this change has been muted as early as 2015.

There is no mention of what will happen to those men and women who would currently qualify for a much bigger State pension than £140 per week when you include SERPS and S2P – have they paid in to a pension that they will never receive?

 

Contracting-Out of S2P (formerly called SERPS)

It will no longer be possible to contract out of the State Second Pension Scheme (S2P) using a money purchase arrangement such as a Personal Pension Plan with effect from April 2012.

This means that men and women will no longer have the option of contracting-out and will, instead, begin to earn an entitlement to an additional State pension (but see above –will they ever receive it?).

From April 2012 the only people who will be contracted out of S2P will be those few fortunate enough to still be in a Final Salary scheme.  

Auto Enrolment

Beginning in 2012 all employers, regardless of size, must enrol all employees earning more than £7475 per annum into a pension scheme and all employers and employees must contribute to it.

The employee must contribute a minimum of 4% of salary and, in some cases, 5% of salary.

Auto enrolment begins in 2012 for the very largest employers but will gradually be extended to all employers and employees by 2016.

Individual employees can opt out of auto enrolment but only after they have first been enrolled.

A new national pension scheme known as NEST (National Employment Savings Trust) is being created for those employers who don’t have their own pension scheme into which employees can be auto-enrolled.

Reduced Annual Allowance/Reduced Lifetime Allowance limits

From April 2011 the maximum amount that can be contributed to a registered pension scheme per individual is being reduced to £50,000 per annum from the present £255,000 per annum.

For many people this will not have any impact but it could have a significant impact for high earners and those members of Final Salary pension schemes who receive a large salary increase – they could find themselves facing a tax charge even though the contributions are less than £50,000.

The Lifetime Allowance (the maximum tax efficient pension fund an individual can have) is being reduced from £1.8 million to £1.5 million from April 2012 and this allowance is being frozen until 2016 at the earliest.

Compulsory annuitisation

Under current pension rules, at age 75, then generally a pension fund must be used to buy an annuity (there are certain small exceptions) – you cannot continue in Unsecured Pension (Income Drawdown) for example.

It is the government’s intention to remove this need to buy an annuity by age 75 but the final rules and revisions will not be announced until December and may not be implemented until much later.

As an interim measure therefore the age at which a pension fund must be used to purchase an annuity has been increased to 77.    

 

 

 

 

 

 

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Contact us

Retirement and Investment Solutions
5 Lancer House, Hussar Court
Waterlooville
Hampshire, PO7 7SE

T: 01489 878300
F: 0870 0104883
E: advice@retirementis.co.uk