New pension laws come into effect

A new set of pension laws and an overhauled state pension – being paid to new, rather than existing pensioners has begun.

A new set of pension laws and an overhauled state pension - being paid to new, rather than existing pensioners has begunThe government’s long term goal is to simplify the pension system- stripping away extras such as the second state pension.

It will also become cheaper, in time, for the government with many of those in their 20s and 30s receiving less than they would under the old system.

But in the short term, the self employed particularly will benefit.

A Department for Work and Pensions (DWP) spokeswoman said: “Millions stand to gain from the changes to the state pension, including women and the self-employed who so often lost out in the past.”

“The new state pension will provide a sustainable system for future generations who will also benefit from workplace pension savings throughout their careers.”

However, the independent Institute for Fiscal Studies (IFS) said that the new single tier, or flat-rate, element of the new system may have been overstated, leading to the risk of “disillusionment” from new pensioners.

But continued complexity is unavoidable in the short-run. There is a considerable risk of disillusionment as people start claiming pension incomes this year.

The basic state pension, which is still being paid to existing pensioners, is worth about £120 a week, plus top-ups such as the state second pension for those who qualify.

The new state pension will be paid to men born after 6 April 1951 and women born after 6 April 1953.

To qualify for any state pension under the new system, individuals will need to have 10 years of National Insurance contributions. To receive the full amount, of £155.65, they will need to have 35 qualifying years.

Some, primarily public sector workers, will receive less than the full amount if they were contracted out of the state second pension. In practical terms, this meant they paid less in National Insurance contributions, but more into their workplace pension scheme.

The most significant change in the long term is the abolition of the state second pension.

The effect, is that 11.4 million younger workers will get less out of the new system than they would have done had the old system carried on, according to the Pensions Policy Institute.

By 2050, about half of retirees will get a higher pay out, with half getting a lower pay out.

Assuming a pension age of 70 by then, in general, people born before 1980 can, on average, expect to do better out of the new system, but those born after that date are likely to fare worse.

So if you are confused by the new pension system and you would like some help you can either ring us now on 01242 583001 – email us on edith@esbaccountancy.co.uk or click the Contact Us buttonpayroll bookkeeping services small business help contact esb accountancy gloucestershireor please fill the form at the bottom of the contact us page.

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