Make sure your old dears are looked after in retirement- after all, it’s YOUR inheritance
The Government just keep messing with pensions- increasing retirement age, making your old lady work her socks off until she's as old as your dad. And now we have got more information (but not a lot, as a short pensioner might say) on the new flat rate pension.
The new flat rate pension scheme is supposed to replace the current State pension and Pension Credit systems we have now, with effect from 2015. The current rate of State Pension for men and women is £97.65 a week, but is topped up by means tested elements such as pension credit to a minimum of £136 a week.
Iain Duncan-Smith has now said that the new flat rate will be at least £155 a week, up from the £140 suggested when it was originally announced. Note, however, that a flat rate scheme means exactly that - with the absence of the means-tested pension credit element, your aged and widowed mother will get exactly the same as Richard Branson will, in a few years’ time.
So this is good news, right? If they are getting more dosh from the Government, then they won’t need to go selling off any of what’s rightfully yours.
Well, yes and no. Because although the new flat rate will benefit many people, and remove the disincentive to save for fear of reducing pension credit, as ever, there is a payback.
You may remember SERPS, the State Earnings Related Pension Scheme, which was effectively you topping-up your State Pension, depending on how much you earned during your working life. Before pension credit existed, this was a handy (if compulsory*) way of increasing your retirement provision.
Then of course, SERPS became S2P, and the method of calculating how much extra you might get needed that super-computer thing from Superman 3 (the one with Pamela Stephenson in. You know the one). Under the new scheme, the flat rate will mean no one will earn more entitlement to S2P, but there is uncertainty over whether previous contributions to the scheme will still count. Yes, you could have been paying into a Government enforced pension top up scheme for up to 50 years, just for them to rob you (or your inheritance wielding parents) at the final fence.
The new rules will only apply from April 2015, and will only apply to pensioners retiring and drawing their State Pension after that date. Further details are expected next week, but for those looking to retire in the next few years, it may be worth calculating whether a pre-2015 pension plus S2P works out better than a flat-rate pension, with no S2P. Clearly if S2P contributions will be honoured, deferring your pension benefits until after 2015 looks like a sensible choice.
But then, who’s to say they won’t change the rules again by then?
* you could contract out of SERPS (or S2P) but you had to pay your NI rebate into a separate pension scheme. Over the past few years, whether you should be in or out (or shaking it all about) of the Government scheme has changed, but if those still in look to be losing their entitlement, those who came out will be laughing their tits off.