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30 Mar 2016

How the new state pension will affect you

The UK state pension is set to undergo a major boost next month, with those due to retire after 6 April 2016 anticipating a £39.70 increase in weekly pension payments. But not everybody is going to benefit from these changes, and The Telegraph recently reported on how the new state pension will affect different individuals.

As the publication explains, the weekly payment for new retirees will be £155.65 (£8,094 a year) for those retiring this April - a £39.70 increase from the current payout. However, only a minority will be financially better off, as the basic state payment for existing pensioners will only increase to £119.30 per week (£6,204 per year).

State pensions were introduced by Lloyd George in 1908 as a way to protect vulnerable older people from poverty. The current system is funded by National Insurance contributions (NICs) and is claimed by more than 12 million people throughout the country.

Politicians have been adjusting pension payments ever since, in an effort to save money whilst ensuring pensioners have a decent standard of living. But with rising life expectancies and an increasing population, the number of people reaching state pension age is expected to double by 2029, reaching 820,000.

Five years ago, the government announced its plans for a higher, flat-rate pension to replace the more complicated ‘two-tier´ system. In theory this meant that everyone would receive the same amount, but forecasts from the DWP suggest otherwise. It is claimed that by 2030, more that 150,000 new retirees will not receive the full amount.

In order to receive the full £155.65 per week, the article explains, employees must have paid NICs for 35 years or more; this works differently for those who are self-employed. Fewer years could result in a proportionate payment, while less than 10 years will get nothing.

The entire state pension sum is protected against inflation by a ‘triple lock,´ meaning the state pension will rise according to wage or price inflation or 2.5%, depending which is highest.

Winners of the new state pension are likely to include the self-employed, very low-paid workers and non-workers who rely on other payments such as caring credits. The losers will be those on below average wages, as well as high earners and those with long careers, as they can no longer accrue additional benefits after the 35-year cutoff.

Women born in the 1950s could also miss out due to the pension age changes coming into force faster than promised. They have launched a campaign called Women Against State Pension Inequality (Waspi), with a petition ending on 20 April.

Copyright M2 Bespoke 2016

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