Day: February 15, 2015

New State Pension Scheme

A new State pension scheme will come into operation in little more than 15 months, in April 2016. The existing State scheme is complex, involving a basic State pension and various earnings-related supplements, notably the Second State Pension (‘S2P’). A further complication has been the option of contracting out of S2P and diverting National Insurance […]

Pensioner Bonds

Details have been announced of the new National Savings Pensioner Bonds, which are designed to appease pensioners suffering from on-going low rates of interest on their savings. The Bonds will be available to over-65 year olds in January 2015 and will offer ‘market-leading’ interest rates of 4% a year over three years and 2.8% over […]

Annuities Improved

Many people assumed that the attractions of being able to draw income from pension plans would eclipse the annuity market, but recent stock market volatility provided a reminder of the benefits of a guaranteed stable lifetime income. Furthermore, the Autumn Statement contained an important additional benefit to annuities, in that payments made from joint life […]

Even Nicer ISAs

Following on from the ground- breaking changes to personal and other defined-contribution pensions announced in the March 2014 Budget, the Chancellor’s Autumn Statement sought to level the playing field by further increasing the tax benefits attaching to ISAs. The so-called ‘death tax’ on pension benefits having been abolished, the tax benefits of ISAs can now […]

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New State Pension Scheme

A new State pension scheme will come into operation in little more than 15 months, in April 2016.
The existing State scheme is complex, involving a basic State pension and various earnings-related supplements, notably the Second State Pension (‘S2P’).

A further complication has been the option of contracting out of S2P and diverting National Insurance contributions to enhance the benefits under personal pension schemes.

The current system has penalised people who have spent long periods out of the labour market or have low earnings and so have been unable to build up sufficient National Insurance.

Contributions to fund S2P. Those particularly affected are women, carers and the low paid.

The new system will improve provision for such people by providing a single tier flat-rate pension based on qualifying years of contributions. This will also be available to the self- employed who do not pay employee National Insurance Contributions and consequently do not qualify for S2P.

The right to contract-out has ceased and the available benefits will be capped, regardless of contributions or earnings, so higher earners will no longer be able to accrue additional benefits. Those with fewer than 10 years of contributions will also lose out and those who have already started drawing State pension benefits before April 2016 will not be eligible to participate.

National Insurance contributions for employees with contracted-out final salary schemes will increase in 2016, which is expected to further accelerate the decline of such schemes.

Overall the effect of the changes on Government spending on pensions will be broadly neutral with the winners balancing the losers.