The single tier state pension started on 6 April 2016, but even the Pensions Minister has doubts about how much of it the public really understands.
A man born after 5 April 1951, or a woman born at least two years later, will not receive a basic state pension when they reach SPA (State Pension Age). Nor will they receive any additional state pension, such as the State Second Pension (S2P). Instead, from 6 April, they will be entitled to the new single tier state pension.
The single tier pension will be £155.65 a week, whereas from April the basic state pension will be £119.30 a week. However, not everyone will receive £155.65 a week state pension under the new regime.
If you reach SPA before 6 April, the current state pension rules will continue to apply. If your SPA is later, some complicated transitional adjustments will make allowance for the benefits you have earned under the old system, including those from contracting out of the state additional pension.
The result is that in 2016/17 only 38% of people reaching SPA will receive the full single tier pension - and many will receive little or no more than the state pension they earned up to April 2016.
The Pensions Minister, Dr Ros Altmann, has conceded that there is "much misconception" about the level of the new pension that people will receive. In a recent radio interview she went as far as to agree that the single tier pension had been mis-sold.
The new system will ultimately save the government money, so in the longer term it will create more losers than winners. If you are an employee earning over £40,000 a year and are not contracted out of S2P, then you could be among the biggest losers.
If you want to redress the balance, there are a variety of ways to boost your retirement income. These range from topping up national insurance contributions to increasing regular savings, via a private pension or otherwise. To discuss the options suited to your personal circumstances, please contact Martyn Lodge.
Please contact Martyn Lodge at Wise Financial Solutions on 01252 711244.