Flat rate state pension announced for 2017

January 15th, 2013 by

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Dan Woodruff

Dan Woodruff

Certified Financial Planner & Chartered Wealth Manager at Woodruff Financial Planning
Financial Planning helps you to navigate and anticipate significant life changes. I want to help you to ensure your money is managed wisely to give you the financial security that will fund the future and lifestyle that is important to you.
Dan Woodruff

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flat rate state pension from 2017Yesterday the UK Government announced the long awaited rules for the new flat rate state pension from 2017.

This will gradually replace the existing basic state pension, and the top-up second state pension (S2P).

The current maximum basic state pension is £107.45 per week, and you can top this up with the second state pension depending on your earnings. For those with low pension benefits the state pension can be topped up by pension credit to £142.70. This is seen as a complicated system, and the Government aims to simplify the arrangements (and bring in some extra tax from 2017).

Key points:

  • A new flat rate state pension has been announced for 2017
  • Summary of the new rules
  • Who benefits from the new flat rate state pension?
  • Claim your free retirement checklist

Here is a summary of the rules for the new flat rate state pension:

  • The new flat rate state pension will be £144 per week and will rise between now and 2017 by inflation. The new pension will rise by retail prices, earnings or 2.5%, whichever is the higher.
  • Full entitlement to the new flat rate state pension will come after paying National Insurance Contributions for 35 years.  Currently you can get the full basic state pension after 30 years.
  • You must pay National Insurance Contributions for at least 10 years to qualify for the new flat rate state pension
  • The second state pension will be abolished. This means that those people who stayed in the second state pension will lose these benefits; those who contracted out of SERPs/S2P will benefit from the extra funds in their personal pensions. Employers with final salary schemes opted out of the S2P will find their national insurance contributions rising.
  • Those retiring before 2017 will retire under the current rules.
  • The state pension age will be reviewed in each future Parliament, with increases to the state pension age based on life expectancy.

Who will benefit from the new flat rate state pension?

  • The self-employed
    Currently, the self-employed pay lower National Insurance Contributions, and therefore receive lower state pensions. This will likely boost their state pensions under the new flat rate scheme.
  • Women
    Many woment took a career break to have children. This could boost their state pensions.

High earners who have built up considerable second state pension are likely to lose out.

Overall, any simplification of the state pension rules should be encouraged. However, any changes are likely to bring winners and losers.

What to do if you are retiring soon

We have created a handy free resource if you are retiring soon – the retirement checklist. This gives you the top 10 tools you need to know to claim the maximum retirement income. Just complete the form below to claim your checklist.

Photo credit: Flickr>treasureofthesea

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