News Archive - November 2010
State Pension improvements
8/11/2010
Many of my clients have a very negative view of the state pension. The basic state pension is seen as 'peanuts' and I get the impression that a fair percentage of the population do not expect to get anything at all when they reach the state retirement age.
The state retirement age is being pushed back and whereas it used to be 65 for men and 60 for women, the new state retirement ages will be 66 for men and women by 2020. These ages are likely to be pushed further back over the years to come.
What you need to know is that the state retirement age was set at 65 for men in 1948 when the basic state pension was first introduced. Life expectancy was a lot llower and the pension was designed to give workers a subsistence income for the few years before they died. It paid around £35 per week at today's prices.
As people live for longer, and the proportion of pensioners to working people goes up, so the cost of this pension scheme goes up. Tax or NI rises are always unpopular, but something had to give. Putting back the state retirement age is one way around the problem.
The new proposals for a flat rate state pension of around £140 per week are a welcome simplification to the current system of basic pensions, earnings related top ups and pension credits.The removal of means testing will perhaps give people more iincentive to save for themselves.
I still think the basic state pension has an undeservedly bad reputation. Even at current levels, it amounts to an RPI linked single life pension of £5,078 per annum. To buy this on the current annuity market would take a personal pension fund of around £125,000 for a man and £135,000 for a woman.
I always recommend that clients get a state pension forecast from The Pensions Service - you might get a pleasant surprise (especially if you never contracted out of SERPS).
If you want a review of your pensions - come and speak to Mulberry Financial and we will be able to help.
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