Government proposals, in the UK, to reform pensions will see winners and losers. It is estimated that higher national insurance contributions will mean, in effect, a tax rise of 1.4p in the pound, for more than 6 million workers.
There is no longer a default retirement age in the UK. There is however an age at which people are entitled to claim their State Retirement Pension. This age is currently changing. For women it depends on when they were born. Those born between 1950 and 1955 have a phased date. This has meant a change from 60 to between 61 and 65. For men born during that time it is 65. Men and women born after 1955 are currently looking at age 68. This could change again.
With an increasing older population, Western governments looking at austerity measures have been addressing the cost of retirement. In the UK various cost cutting measures are under consideration. Currently there is a minimum basic pension entitlement and for those with insufficient National Insurance Contributions, welfare payments fill the gap. Welfare reform in the UK could change that. A universal credit will replace a range of benefits.
Government proposals to introduce a flat-rate pension have received a mixed response. A report in the Guardian claims, 'Proposed flat rate state pension of £155 per week for all could mean higher national insurance contributions, an effective tax rise of 1.4p in the pound'. The figure of £155 has already been downgraded. It is now equivalent to £144, reports the Independent.
The proposals will offer a 'one size fits all' pension. Currently, the amount of pension received depends on factors, such as the claimants' working life national insurance contributions. The proposals will mean, for example, that women who in the past chose to pay the lower rate 'women's stamp' NI contribution, and workers who took a career break and the self-employed, will receive the new pension.
However, as a report in the Telegraph points out 'More than six million workers face paying hundreds of pounds more tax each year under the Coalition’s plans for a new flat-rate state pension, government sources have admitted.' This is because the practice of 'contracting out of SERPs' will no longer be an option.
Since 6 April 1978, it has been possible for final salary and career average schemes to contract out of SERPS, also called the Additional Pension. The flat rate pension proposals will end that option. This will lead to an increase in national insurance contributions for many.
The changes are still at the proposal stage and, therefore, could be amended.
Latest: Ahead of the plans being revealed in Parliament Monday more information been revealed.
The changes will not affect people already in receipt of pension or those who will receive their pension before 2017. 35 years national insurance contributions will be necessary to receive the new flat-rate pension. Those with less than 35 years will receive a proportion of the amount. The weekly payment will be £144 plus inflation rise between now and 2017.The current full state pension is £107.45 a week but with 'top-ups' can rise to £142.70.
The plans are now eady to be revealed today. The government maintains they will not cost more.