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Will the £140 state pension affect my SERPS-S2P?

Retirement | State Pension Helpful? 21

Asked by Charlemagne911, submitted 26 October 2010.

Open Quote Will this new government initiative to pay everybody £140 per week have a detrimental effect on people whose combined old age pension exceeds that amount? I have no objection to people receiving more to improve the lifestyle of the poorest but object if it is to the detriment of others who have paid into the system for many years to receive an enhanced pension.End Quote

Answered by Justin on 28 October 2010

I'm afraid the answer to your question is unknown at present. The Government has said it will publish proposals to replace the current state pension system with a flat £140 weekly payment by 2015, but until the proposals see the light of day it's anyone's guess as to what might happen.

It would seem mightily unfair to me if those who accumulated additional pension benefits under SERPS/S2P saw those benefits reduced or wiped out. So building in an additional pension for those where these benefits exceed £140 a week under the current system would seem sensible.

But it's not quite that simple, as those who 'contracted-out' of SERPS/S2P will have built up an independent pension pot that could leave them better off versus those who've remained in SERPS/S2P, if they receive the £140 weekly pension. One option would be to reduce their £140 state pension based on how long they've been contracted-out, but this will start to make the simplification plans very confusing and potentially unfair.

Also, it would seem unfair if the Government makes retrospective changes to additional state pension top-up schemes that most of us have used in good faith.

Although conventional wisdom in recent years has been to remain contracted-into the S2P, if the Government is serious about a flat state pension then contracting-out could make sense, although I'd wait until the proposals are published before making a decision.

If a flat state pension does see the light of day I envisage a lot of protest. However it's implemented there's bound to be a group a people who are left worse off and they'll probably have every right to complain very loudly.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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Readers' Comments (2) - To post a comment please register or login .

Comment by Charlemagne911 at 1:16pm on 28 Oct 2010:

Thank you for your answer Justin. As ever these announcements are made or leaked by the Government but the detail is missing. I worry whether fairness will be taken into consideration - a lady who works for me (born in 1952) has had her pension age increased by 5 years and 5 months in the last four years. This hardly seems fair that this particular age group has been affected/targeted but it has happened without any leave to appeal.
If people do contract out as a result of new arrangements it will immediately affect the conceived NI pot and the govenrment may have to think again and reduce the £140 amount in order to balance the books. Alternatively taxation could be increased elsewhere to make up the shortfall. If businesses acted like governemnts and announced plans lacking any detail they would soon become ex-businesses!!

Comment by justin at 10:42pm on 28 Oct 2010:

You're probably right re: fairness not seriously being taken into consideration. Saga this afternoon announced it had confirmation from the Government that those with SERPS/S2P pushing their weekly pension above £140 wouldn't lose out and that those with contracted-out pensions could see their basic £140 pension reduced. But how it's possible to confirm something that hasn't even been formally proposed yet is beyond me!

There's also the issue of people (most commonly women who've taken career breaks) who've paid to increase their years of NI contributions suddenly finding out it was a waste of money.

This is a can of worms. If the Government wants to cover the various scenarios where people could unfairly lose out, this 'simple' flat pension could become overly complex for the couple of generations currently working.

And, given this is ultimately meant to be a spending cut, the Government can't afford to be too generous with any concessions to ensure fairness. Much as I like the concept (simplicity is good), in practice this could end up a real mess...