Retirement and pensions update
Recent months have seen a significant number of government announcements concerning retirement and pensions. A round-up of some of the main planned changes are as follows:-
Flat rate pension
The government has published a white paper announcing plans to introduce a single-tier, flat rate pension of £144 per week commencing in 2017 at the earliest. The reforms would simplify the current system of basic and additional state pension credits, which Pensions Minister, Steve Webb, described as ‘fiendishly complicated’.
The plan also includes raising the minimum number of years worth of NI contributions required to qualify for the full pension to 35 years from the current 30.
State pension age
The point at which men and women reach state pension age (SPA) will be aligned. It is currently 65 and 60 respectively and the new rules are being phased in over several years. The SPA is set to increase to 67 for all by 2026 and it is planned that it will rise to 68 and beyond in time. The chancellor announced that SPA will rise over time with life expectancy rates and its predicted that a 16 year old now could be retiring at 72 or 73 years old! The government has a useful ‘State Pension calculator’ on its website, www.gov.uk/calculate-state-pension which provides details of your predicted SPA and amount of state pension.
Auto enrolment has now commenced for the largest companies. See more details elsewhere in this newsletter.
Maximum pension contribution limits
The annual amount that can be contributed into pensions will reduce from £50,000 to £40,000 from April 2014. At the same time the lifetime allowance, which is the maximum amount an individual can build up their pension pot reduces to £1.25M from £1.5M. Exceeding these limits triggers a significant tax charge.
Written by Brian Corlett