With the new tax year well under way, certain financial changes have come in force, and it is important to understand what these changes mean for your finances. Many people aren’t aware of the changes that have occurred, meaning that they might not be fully aware of how their finances are being affected.
Here’s what you need to know about the changes brought in at the start of April that affect your future pension income.
The Change to the State Pension Scheme
One of the biggest changes which has been brought about is the adaptation of the basic and additional pension schemes which have been in place for a long period of time.
The Government have scrapped these schemes in favour of a brand new “single tier” pension scheme which intends to be a much fairer, simpler system in the long run, giving all eligible individuals a flat rate income.
If you are someone who has paid National Insurance payments for at least 35 years by the time it comes for you to retire, you are eligible for a flat rate of £155.65 a week in pension. If you have paid less than that, but have worked for 10 or more years, you will still receive a pension, just a little less than that of those who have had a longer working life.
Chancellor George Osborne has said “The new system means that at last, people will have certainty in what they can expect from the state in old age – and for many women and the self-employed, it will be more generous.
“People will know that the full amount when they reach state pension age will be over £8,000 a year in today’s money, so they can plan other retirement saving they may want on top.”
However, one drawback of this new scheme is that it doesn’t take into account the working life of those people paying into a workplace pension schemes which reduced their National Insurance payments.
Quite a few of these pension schemes provided by companies gave their employees the option to pay a lesser amount of National Insurance, meaning that the Government won’t have received the full amount that is expected of working for 35 years – even though they may have worked longer.
This means that instead of the flat rate that the eligible individuals receive upon retiring, these people will be paid a pension which is based on the amount that they have paid in National Insurance payments over their working life.
Out of all the changes that have been implemented, this move to the new single tier pension has been the most controversial. If you are worried about how this will affect your future pension and need some confidential advice, please feel free to get in touch with us for a free, no obligation consultation with one of our professional financial advisers.