City Trustees - part of Mattioli Woods

News and Media

24 January 2013

Government shake-up state pension

The Government has recently unveiled its shake-up of current state pension provision. On the 14 January 2013, the Department of Work & Pensions published its White Paper, The single-tier pension: a simple foundation for saving, setting out HM Revenue and Customs' plans for reform of the state pension system.

A new flat-rate pension

The single-tier pension or flat-rate pension will:

  • Replace both basic state pension and S2P and be set above the basic level of means tested support. In current figures this will be a pension of £144 per week
  • Require 35 qualifying years of national insurance contributions (or credits) for the full pension, rather than the current 30. Those with an incomplete contribution record will have the pension prorated
  • Be based on individual qualification. It will not be possible to build a pension entitlement based on a spouse or civil partner's NICs

The single-tier pension is designed to simplify state pension provision, and although on first sight, it seems the changes will help women, low earners and the self-employed with their retirement savings, it is not always as clear as it seems.

The implementation and administration of the single tier pension will not be straightforward as there will be transitional arrangements to take into consideration rights accrued before April 2017.

Contracting out via a defined benefit schemes

The Government's proposals will have a major effect on defined benefit contracted-out pension schemes. Whilst contracting-out on a defined contribution basis was abolished from April 2012, contracting out via a defined benefit occupational pension schemes is still possible with members and employers paying reduced national insurance contributions. The introduction of the single-tier pension means that contracting-out will be abolished. This means that both employers and active members of contracted-out defined benefit schemes will see an increase in their national insurance contribution.

In order to address the effect this will have on funding for defined benefit schemes, proposals are being made to provide employers with the power to change future service benefits or increase member contributions. Employers and trustees will need to consider and take advice on whether to use this power of amendment prior to the end of contracting-out in April 2017.

How can we help?

With an ever-changing legislative landscape, we strive to provide our IFA connections with meaningful guidance on all aspects of pension schemes.

Our focus is to remain strong on integrity and compliance, ensuring your clients' pension arrangements is administered with an attention to detail that is appropriate in what is often a difficult regulatory environment.

For more information on our pension schemes and other services available at City Trustees, contact us today.

Kate Blakemore, Senior Account Manager


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