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Will I be a state pension loser?

Retirement | State Pension Helpful? 8

Asked by junevy, submitted 09 April 2011.

Open Quote Hi again Justin - you gave me such good advice previously and I am now back with another question.

I was very pleased to hear that the pension was going to rise to a set amount of around £140 a week come 2015/2016 - I then got deflated on hearing that this will not apply to people who are already receiving a pension. Can you please confirm that this is indeed correct?

If it is I think this is very unfair, especially to people like myself who only receives around 2/3 of the basic state pension (reason being is that I paid a married womens rate years ago as was not advised that this would affect my pension later on). If I had had this knowledge, I would certainly have put the full amount in.

I have worked most of my life (even doing an evening shift in order to be home for the children in the day and supplementing it with hours in the day when children were at school). So you see, I have paid a lot of NI and tax most of my life - 65 this year and still working mostly because I enjoy what I do. Why is the government going to cause such a divide between pensioners if this is the case?

Looking on the bright side (you can usually find one if you look hard enough) my personal allowance will be going up to nearly £10,000 and as I am still working I can reap the benefits.
End Quote

Answered by Justin on 11 April 2011

Good to hear from you again. I'm afraid I can't confirm whether any changes to the state pension will or will not apply to those already receiving their pension, for the simple reason the Government has yet to do so.

However, in its recently published 'consultation paper' (outlining proposals for its two preferred options) the Government clearly stated that those already receiving a state pension won't be affected by any changes - so it looks very likely we'll end up having a 'two class' state pension system.

It this proves to be the case it will be grossly unfair to people in your position, as you'll be receiving a significantly lower state pension than someone under the new system despite you both paying a similar amount of tax over the years.

But, on the flipside, it any changes did apply to existing pensioners then those who currently receive a decent level of SERPS/S2P (i.e. extra state pension) would probably lose out to some extent, so they'd be equally angry - seems to me it's a no-win situation.

There is no doubt that the state pension needs to be reformed. The current system will become increasingly unaffordable for the Government in future (demographics mean fewer people working to support more in retirement) and the pension credit system gives no incentive for many to save towards retirement (as they'll simply end up replacing 'free' state benefits).

But as the Government can't afford to increase state pension spending then any changes will invariably mean a large group of people losing out, making them (understandably) very unhappy. It risks being a big vote loser so will be interesting to see whether any changes do get pushed through during this parliament.

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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