The issue of pension changes has been in the news lately after the recent budget by George Osbourne the Chancellor of the Exchequer for 2011 – a copy of the budget report can be seen here: “http://cdn.hm-treasury.gov.uk/2011budget_complete.pdf” if you would like to view it in its entirety (moreover, a simplified version can also be see here: “http://www.hm-treasury.gov.uk/2011budget_easyread.htm“). In the document, the government states that it intends to realise the goal of the government for a “fair, simple and efficient tax, benefit and pensions system”
and that it wants to reward “work, saving and personal responsibility”
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They report that their intention is to reform the system for state pensions so that for “future pensioners” they will be able to gain a “simple contributory, flat-rate” level of support that is greater than the “Guarantee Credit” means tested form. In section 1.129 of the main budget document they state that the intention of the Coalition is to make a system that keeps costs at a “sustainable” level both for current citizens and those in the future. In section 1.130 they go on to say that that in terms of the current system that it is “complex” and moreover “not clear” for those who want to work out what actually the amount is that they are to receive especially as regards the state second pension and that it results in a situation of making it “difficult” to make sufficient and correct plans for retirement age.
In terms of the ramifications for those who are already receiving pension payments, they go on to say in section 1.130 that the government will “honour” the contributions for those in the current system and that the DPW will shortly publish a reform consultation “Green Paper” for moving to a “single tier” system for pensions. One website that has been covering this topic recently is the Economist and in an article published some days after the budget on April 7th 2011 from their website, they look at the results of the proposed changes in an online article: “http://www.economist.com/node/18529941?story_id=18529941&fsrc=rss“. What is quite apparent also from the issues they look at is that for those new to the area of pension topics that it could be quite complicated for some without having professional tax advice either from the government or an external organisation and needless to say, if you are looking for the best option that might be suitable for you, that might be the way to go unless you have sufficient knowledge in this specialist area.
Looking at some of the points that were considered by the Economist’s article they record that Gordon Brown made the previous change whereby originally “tax credits” were effected it stated. This was for the benefit of “low-income” groups which also included those who were elderly and were solely relying on the basic state pension that they were able to receive – this amount is currently at £102 the article reads. As a result of increasing the pension credit, this amount has now be significantly increased to the amount of £137. However, the issue that the government has looked at, the Economist records, is that it has reduced the incentive of people to save themselves. This is claimed to be the case because when the amount to be received is calculated, the savings of people that they have are taken into consideration and thus those who have been more successful to this end were supposedly disincentivised in their intent to do so. It has been reported that ministers of the coalition government think that Gordon Brown’s “savings credit” which was an intention to help resolve this issue has only served to complicate it.
In terms of who would benefit from this, the Economist says that additionally, the change will “help women” because if they might have taken time off work for having children, they would not be penalised in this way now if they did not make enough contributions. As regards how this can be done, the Economist article references two possible avenues which can be seen in further detail by reviewing the government’s budget report. The government has reported that they are going to make the state pension age (also known as the “SPA”) change from 65 to 66 and from the year 2020 from the previous date of 2026. In section 2.15 of the government budget, they declare that they are going to make changes in the state pension age more “automatic” as well as having the option for an independent review as well. Additionally the Economist reports that they will make an “early abolition of the state second pension”
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