When the new State Pension was introduced for those reaching State Pension age on or after 6th April 2016, the intention was to simplify the old system which was a State Pension system with multiple different aspects (i.e. the basic state pension, state earnings-related pension (SERPS), the second state pension (S2P) and the graduated retirement benefit).
The new State Pension is a single benefit paid to individuals who have made (or been credited with) 35 years National Insurance contributions.
Unlike the old system it replaced, the new pension is based solely on the contributions of the individual, with no extra amounts awarded based on contributions made by a spouse or civil partner and no inheriting of rights after the death of a spouse or civil partner.
This loss of the death benefits is just one of the major issues with the new system. Unfortunately, this is not widely known by the general public. Government should publicise this issue.
Apart from the obvious issues regarding longevity and possible legislation changes to the State Pension (including the possible loss of the ‘triple lock’*), one of the biggest issues is incorrect State Pension forecasts.
We wrote about this in a blog back in February 2017, https://www.pandbifa.co.uk/state-pension-forecast-wrong/.
Last year the former pensions minister Steve Webb (in partnership with the ‘This is Money’ website investigated this further and found that in some cases, new forecasts were more than £1,000 a year higher than had previously been expected. These cases were raised with DWP who initially said that these were isolated errors which had now been corrected.
However, there still seems to be issues, particularly around people who were members of Defined Benefit pension schemes that had been contracted out.
Commenting on the findings at the time, Steve Webb (who was also the Director of Policy at Royal London at the time) said: “People are increasingly encouraged to use online services to help plan their retirement, and the new pensions dashboard will rely heavily on such data. It is therefore very worrying that hundreds of thousands of people may have received incorrect state pension forecasts and in some cases will have taken decisions about their retirement plans on the basis of incorrect information. Now that the Government is aware of the scale of the problem, it must put an urgent stop to the issuing of incorrect statements. Individuals need to have confidence that the information they receive from the government is accurate and should not have to live with the uncertainty that a statement they have already received may be seriously incorrect”.
If you haven’t already, please visit https://www.gov.uk/check-state-pension to request a State Pension Forecast or call the Future Pension Centre helpline on 0800 731 0175 and request a paper copy.
We will issue new updates on the future of State Pensions regularly and we take this into account at each of our clients annual reviews.
In general terms the levelling out of the State Pension in April 2016 was beneficial to a lot of low earners and carers. This is good news.
However, for those of us who have lost significant death benefits from the State Pension, the spouse’s pension element from April 2016, advice should be taken to ensure that our long term partners have enough pension provision (or replacement for it) as soon as possible.
Don’t leave it too late, until just before you draw your State Pension. This could be a mistake that you can’t rectify at this stage.
If you wish to discuss any aspect of the State Pension or retirement planning, please contact us at firstname.lastname@example.org or call us on 0151 546 1969.
Andrew Lloyd 02/03/2020
*The triple lock is the method under which the State Pension increases each year. This is in line with whichever is the highest of consumer price inflation (CPI), average earnings growth or 2.5%.
Data Source: Royal London Press Release – ‘Minister forced to admit ‘significant’ problems as a third of a million incorrect state pension forecasts issued’ – June 2019