Last week, the government outlined proposals for a major overhaul of the state pension system. The aim is to simplify the system by getting rid of all the means-tested sections entirely for all those retiring from April 2017.
Under the existing system, many pensioners are entitled to a top up their basic state pension payments of £107.45 a week, via the means-tested Pension Credit and the second state pension. However, figures suggest that around 1.5 million people fail to claim Pension Credit.
The coalition's proposals include a single flat-rate state pension, worth around £144 in today's money, to be introduced for new pensioners from 2017. The actual sum will rise with inflation over the next few years. The new reform will create a flat rate pension based on 35 years of National Insurance Contribution, rather than the current 30 years, in a bid to help women, low earners and the self-employed, who under existing rules find it almost impossible to earn a full state pension. The state pension age is also set to rise to 66 by 2020, and to 67 by 2028.
However, more importantly for clients of Retirement and Investment Solutions, who could well have built up entitlement in excess of £144 per week, it is proposed that transitional arrangements will be introduced to protect state pension rights accrued up to the start date of the new single-tier pension. We will be monitoring the situation right through to Royal Assent and will keep our clients informed of what these changes mean to them individually.