With only a week to go until the implementation of the new flat rate State pension, Chris Noon, Partner at Hymans Robertson, discusses what we’re likely to see and the implications of its introduction.
Discussing why so few women are set to retire next year, he said:
“Only 90,000 women are set to retire next year as opposed to 320,000 men. That’s because in 2016/17, state pension age (SPA) for women only happens if their DoB falls within a 3 month window, between 6/4/53 – 5/7/53. That means we’ll see roughly a quarter the number of women reaching SPA you would normally expect to see in a year.”
Explaining how the State Pension Age is going up:
“The state pension age is currently 65 for men and nearly 63 for women. Women’s SPA will rise steadily every couple of months equalising at age 65 for men and women in 2018. It will then reach 66 by 2020. The next planned increase, towards age 67, will start in 2026 and conclude in 2028.”
Commenting on how much the State pension will save the Government in medium and longer term:
“Government spending on pensioner benefits is projected to be broadly the same under the new system (within 1% of total expenditure, and within 0.1% of GDP) until the 2040s. The Government won’t see savings from the new State pension until 2060, when it will begin to save around 0.6% of GDP per annum, or £12bn a year in current terms.”
“So over the long-term the Government is projecting that we’re all going to be worse off. But not everyone will be. Under the new flat rate pension, employees in contracted out arrangements (mostly public sector employees) and the self-employed will receive substantially higher State pension – up to around £2,000 per annum more.”
Discussing what the Government’s role in retirement should be:
“The Government's role in retirement should be to provide certainty through the flat rate State pension and act as an insurer of last resort for long-term care needs. To ensure those roles can be performed in a sustainable way, it's vital that individuals are clear about how much money they will have in retirement, how far off track they might be and what they need to do to get back on track.
“As the recent work and pensions select committee report on the changes to the state pension highlighted, the changes were not communicated nearly as well as they could have been. It is important that communication is improved so that those approaching retirement can adjust their expectations and save enough for an adequate pension.
“Talking about the 'savings gap' in general terms doesn't resonate. Individuals need to know how they will personally be affected. It’s great that Government is committed to the idea of a pensions dashboard, where an individual can view all retirement savings in one place, but there will be challenges in delivering this by 2019.”
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