State pension shake-up
A new state pension system will pay more in 2017, but many – especially women – will be caught out by the small print.The biggest shake-up of pensions for a generation has left thousands of women concerned that they will lose out on valuable pension benefits – even though the reforms were supposed to create a simpler and fairer system.
It isn't just women who are worried that they will now have to pay more to get a full pension. Many baby boomers, who are just a couple of years away from retirement, have been told they will need an additional five years' National Insurance contributions if they want to get the new higher state pension – worth £144 a week – in full.
Those who have taken early retirement or been made redundant in their fifties, or who have moved into part-time work, may struggle to make these additional payments, particularly as those worst hit need to make up five years' of NI payments but are just four years from retirement.
Almost half a million women born in the early Fifties have been at the sharp end of almost every pension change in recent years. Plans to raise the pension age for women from 60 to 65 were first put in place in 1995, with the ages being equalised by 2020. But in 2010 the Government speeded up this timetable, meaning that up to 400,000 women who were already in their fifties saw their retirement age pushed back again, with some facing a further 18-month delay.
But those who are due to retire after 2017 can also face problems. As stated above, some will not have sufficient National Insurance contributions (NICs) to get the full £144-a-week payment.
Currently people need 30 years of NICs to qualify for the full basic state pension. This will rise to 35 years when the new pension is introduced. Many people have taken early retirement on the assumption they have paid sufficient NICs to qualify for a full state pension. This is not now the case.
For those who can afford it, making additional NICs can be a cost-effective way to boost your state pension. Voluntary NICs are currently £13.25 a week, or £698 for the year. The Treasury reviews NI rates on an annual basis, so previous years may be cheaper. You would only need to live for four years after retirement to recoup your money,
This is, of course, based on the current state pension, so arguably becomes even better value for those retiring after 2017. The cost of buying back years was likely to rise to reflect the higher benefit attached. Currently you can use voluntary NICs to buy up to six years' worth of benefits. However, the Government will extend this, so those retiring after April 2017 will have until 2023 to buy back years between 2006 and 2016.
Another option is to register as self-employed and opt to pay "Class 2" contributions. These are considerably cheaper (currently £2.65 a week) but also count towards your NI record. However, they are payable for the current year and can't be used retrospectively.
Those with just 30 years of NICs should remember that, although they won't get the full single-tier pension, they should still get around £123 a week, which is more than a full pension (£107 a week) under the current rules.
If you would like to find out more please contact us using grant@in2matrix.com for more information.
The information is intended to provide information only and reflects our understanding of legislation at the time of writing. Before making any decision, we suggest you take professional financial advice.
Currently people need 30 years of NICs to qualify for the full basic state pension. This will rise to 35 years when the new pension is introduced. Many people have taken early retirement on the assumption they have paid sufficient NICs to qualify for a full state pension. This is not now the case.
For those who can afford it, making additional NICs can be a cost-effective way to boost your state pension. Voluntary NICs are currently £13.25 a week, or £698 for the year. The Treasury reviews NI rates on an annual basis, so previous years may be cheaper. You would only need to live for four years after retirement to recoup your money,
This is, of course, based on the current state pension, so arguably becomes even better value for those retiring after 2017. The cost of buying back years was likely to rise to reflect the higher benefit attached. Currently you can use voluntary NICs to buy up to six years' worth of benefits. However, the Government will extend this, so those retiring after April 2017 will have until 2023 to buy back years between 2006 and 2016.
Another option is to register as self-employed and opt to pay "Class 2" contributions. These are considerably cheaper (currently £2.65 a week) but also count towards your NI record. However, they are payable for the current year and can't be used retrospectively.
Those with just 30 years of NICs should remember that, although they won't get the full single-tier pension, they should still get around £123 a week, which is more than a full pension (£107 a week) under the current rules.
If you would like to find out more please contact us using grant@in2matrix.com for more information.
The information is intended to provide information only and reflects our understanding of legislation at the time of writing. Before making any decision, we suggest you take professional financial advice.
