A Look At The New State Pension System

| March 8, 2013 | 0 Comments


Earlier in January, the government unveiled proposals to simplify the current state pension scheme. While the changes this will entail will be explained further on the article, I think it’s important to first highlight how these moves could affect your retirement income and what you need to do before giving up work.

So, what exactly are these plans? It’s been all over the news in recent months but, if you didn’t know already, Whitehall plans to replace the current means-tested state pension with a less-complex, single-tier structure.

Designed to affect all those who reach the national retirement age after April 2017, the scheme will see everyone who makes 35 years of National Insurance (NI) contributions receive £144 in today’s money as a weekly pension.

This, I’m sure you’ll agree, represents a significant increase from the basic weekly payment of £104 (though this can rise higher when means-tested top-ups are taken into account) and it should make it easier for people to enjoy a comfortable lifestyle when they are older. Married couples, meanwhile, will be set to receive £288 per week between them, provided that each partner has accrued 35 qualifying years of NI contributions – up from the £217.90 they get under the present system.

On top of this, the self-employed, young people, women who have taken time out from work in order to bring up a family and those on low incomes are generally deemed to be the main beneficiaries of the programme. However, the system has been widely praised for helping everyone to prepare for retirement with a greater deal of certainty about how much money they will receive.

As people ought to have a more accurate idea about the amount of the pension they will receive from the state, figuring out how much cash from other sources will be required to top this up should to be easier. This, I think, will prove particularly important for those who have been saving for some time and may be looking to retire within the next ten to 15 years.

Indeed, the greater certainty that the single-tier system is predicted to offer means savers might find they can press on with meeting any major financial goals they wish to achieve both before and after retirement.

Whether you want to go on the holiday of a lifetime, are keen to work part-time before retiring fully (you’ll need a way to top up your reduced income if you do though) or need to pay for ongoing care costs, I think now may be the time to think about unlocking pension savings early.

Doing so enables you to withdraw some of your savings, either as a lump sum or in regular payments, and could see you achieve a whole host of goals prior to retiring fully. Although it won’t be possible to do this with your state pension income, pension release for over-55s is an option that is available with a range of private plans – including stakeholder pensions and occupational pension schemes.

Remember that you can’t withdraw all of your pension earnings early, and it’s best to make sure you leave enough that – when combined with the new state payments – will be enough to provide you with a comfortable lifestyle. It’s best to use the services of an expert broker to help you find the best solutions to release pensions funds prior to them maturing.

What are your financial aspirations and do you think the new state pension programme could have an impact on these? We’d love to hear from you, so please share your thoughts by leaving a comment below.


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