Retirement expert advises people to learn about state pensions
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The new State Pension was designed to make it clear how much people would get in retirement, to encourage everyone to save more under their own steam.
It rolls up other entitlements such as the State Earnings-Related Pension Scheme (Serps) and State Second Pension (S2P) into a single payment. But instead of clarity, it has brought confusion.
Express.co.uk readers are furious, because the new State Pension appears to pay so much more than the old one. “Unfair, corrupt and idiotic” are some of the more polite descriptions we have received.
From April 11 this year, the new State Pension will increase by £5.55 to £185.15 a week, for those who get the full amount.
But the old basic State Pension will rise by just £4.25 a week to a maximum £141.85. That’s £43.30 a week less, which adds up to £2,252 a year.
It isn’t hard to see why people are unhappy.
Married couples have written to us saying that both of them worked all their lives, yet the one who retired before April 6, 2016, gets much less State Pension.
In practice, the change has created a two-tier system. And the gap going to get worse over time, as will pensioner frustration.
Both pensions rise by the same percentage each year, but because the new State Pension is bigger, it will rise more in pounds and pence terms.
So if inflation hits 7.4 percent in September this year, as anticipated, and the Government applies the triple lock for 2023/24, those on the new maximum State Pension will get an extra £13.70 a week. That will lift their annual pension to £10,340.
However, those on the full old State Pension get a pay rise of just £10.50 a week. That works out as just £7,922 a year.
It doesn’t seem right, does it? Hence the furious reaction.
I’ve been talking to a lot of pension experts in recent days, to explore how we ended up in such a mess.
They tell me the difference between the two State Pensions is not as bad as it seems, and the headline rates are misleading.
Many who retire on the new State Pension will get nowhere near the maximum amount, because they haven’t made the required 35 years of qualifying National Insurance contributions during their working lifetimes.
And many who retired on the old state Pension will get MORE than the headline amount in practice.
That’s because they built up additional state pension, via Serps and S2P, which is paid on top of their basic State Pension.
Also, many contracted-out of the old basic State Pension, so their NI contributions went into another pension instead, such as a personal pension.
The income from this will top up what they get from the state, and must be taken into account.
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Also, many who retired on the old State Pension didn’t make sufficient qualifying NI contributions, which used to be 44 years for men and 39 for women, but was cut to 30 years in 2010.
So there are reasons why many on the old State Pension feel left behind.
But the system is so complicated and with so many variables, it isn’t hard to see why so many feel hard done by.
And of course they are.
Because whether you retired on the new or old State Pension, one thing is certain.
It didn’t pay enough income to live on comfortably BEFORE the cost of living crisis. After Chancellor Rishi Sunak’s decision to suspend the triple lock and give everyone 3.1 percent this year as inflation rockets, it certainly doesn’t.
This explains the upsurge in anger. Pensioners feel cheated after years decades of working and making NI contributions. The State Pension doesn’t pay enough to anybody, regardless of when they retired.
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