This is a guest post
The latest pensions news is the UK government’s proposal to introduce a flat rate pension scheme which would come into effect in 2017 and spell radical shake ups for all people planning to claim a state pension.
David Cameron has claimed that plans for a unified pension rate, which will see state pensions rise to £144 per week for new pensioners who make 35 years worth of NI contributions, will benefit women, low earners and the self employed. However those on a higher income look set to lose out and National Insurance payments will rise for up to 6 million workers, including approximately 1.5 million private sector staff who are enrolled in final salary schemes.
The Benefits of the Single Tier Pensions Proposal
At the heart of the pensions reform issue is the undeniable confusion which surrounds the present means tested state pension, which stands at £107.45 but which can be topped up with pension credit. Being means tested, this means that the existing state pension has seen women, low earners and self employed people become more financially vulnerable after retirement.
Under the new flat rate pension scheme, the state second pension to employers will be ended and some groups will benefit from the outset. Women who have taken time out from their careers to have children will see their state pension rise and pension expert consultant Malcolm McLean has said that the new pension scheme will encourage people to save privately.
The Drawbacks of a Single Tier Pension
Older women who won’t be included in the new arrangements also look set to miss out and unions have already expressed their dissatisfaction with new public sector reforms by staging a series of strikes. The increase in the cost and length of National Insurance contributions may prove unaffordable for many DB employers and members who will have to renegotiate the terms of their schemes. And National Health hospitals may find themselves having to contribute up to an extra 3.4p for every pound, meaning rising costs across the board.
Protect Your Pension with Wise Investment
Surprisingly, despite the large number of young people who expect to be able to live to almost the same standard that they do now when they reach retirement age, only 12% of people in their 20s and early 30s actually pay into a private pension scheme. Michael Johnson supposes that this may be due to this generation’s need for immediate access to their savings, however the Coalition’s pension reform may be enough to encourage young people to think more on the benefits of private pension schemes.
For those people who have never considered the benefits of a private pension – or who have, but don’t know where to start – there could be considerable advantage to consulting with a private pensions expert, such as YourWealth UK. If you are worried about the repercussions of the Coalitions present and potential future pension reforms it may well be worthwhile looking into what alternative pension schemes are available for you, and whether or not you should consider paying into a private pension alternative, such as an ISA.
Image by Philip Taylor PT