The new State Pension enables individuals to be much more aware of what they need to save for a comfortable retirement.
The new State Pension is set above the basic level of means-tested support. It is available to those who have at least 10 years of National Insurance Contributions. People will receive state pension based on their own history of National Insurance Contributions and will need 35 years of contributions to receive the full amount.
If an individual’s pension scheme was contracted out of additional state pension then that individual may see a reduction in their initial State Pension amount to reflect any period where the individual will have paid lower National Insurance contributions and accrued benefits in a workplace pension instead.
WHAT THIS MEANS FOR OUR MEMBERS
The new State Pension has resulted in the end of contracting out of the Additional State Pension and the National Insurance rebate provided to contracted-out employers and employees. This will increase scheme costs for employers and increase the tax paid by employees. The Government has compiled some useful factsheets for employers and trustees with open, contracted-out defined benefit pension schemes.
Pension scheme members are likely to have questions about what State Pension they may receive. Further information for individuals can be found on the new State Pension website. This website also includes an animation explaining contracting out.
WHAT THE GOVERNMENT IS DOING TO HELP SCHEMES/EMPLOYERS
The Government has legislated a statutory override for private sector employers so that they can recover the loss of the NI rebate by either increasing employee contributions or decreasing future benefit accrual. According to the legislation, employers will be unable to use the statutory override to recover any expenses incurred in making changes to benefits.
In March 2015 the Government published a response to its on the statutory override along with a final set of . We expect a further set of regulations to be published in Autumn 2015.
THE PENSIONS AND LIFETIME SAVINGS ASSOCIATION'S POSITION
We welcome the new flat rate State Pension, which complements the Government’s automatic enrolment reforms and gives people a solid base from which to build their private savings on for a good income in retirement.
We recognise that the transition from the current system to the new system is not easy. We are working closely with the Department of Work and Pensions to ensure that the regulations support employers and schemes.
The Pensions and Lifetime Savings Association is also looking at the Government’s work on Guaranteed Minimum Pensions (GMP) – particularly on GMP reconciliation, GMP conversion and GMP equalisation.
PLSA members interested in this work should contact [email protected] .
New State Pension website