Starting from April 2016, new government reforms will take place in the state pension – but how will your corporate wellness be affected?
The current basic state pension is £110.05 per week, which is currently supplemented by pension credit and the additional state pension, known as state second pension (S2P). According to the new reforms, everyone who qualifies for the state pension will receive the same amount of £144 a week. As it stands, the amount people can claim from the state varies wildly – S2P can increase your weekly pension by as much as £161 – and so the reason for the flat rate is simplification. The reforms do not include any changes to the state pension age, but this will be increasing to 66 for men and women by 2020, and 67 in 2028
When the state pension reforms take place, there will be clear winners and losers. If you’re self-employed, you’ll do well out of the reforms as you currently receive a relatively low state pension because you can’t build up S2P. However, in 2016 you will be on an equal footing with employees. Likewise, the reforms will benefit people who have taken time out from work. If you stop working to care for children, for example, the years you spend doing this will be recognised under the new system. The reforms will also increase the basic amount from £110.05 (in 2013/14) to £144 a week, which is good news for people on lower incomes.
So what of those who won’t do so well out of the reforms? Existing pensioners will lose out because they won’t be eligible for the new flat-rate pension. If you’re a young person, the change to the state pension age means that you’ll probably be in your seventies before you can retire. If you’re a contracted out pensioner, you currently pay lower National Insurance contributions now. However, these will rise after 2017 and your employer is not required to increase your scheme benefits proportionately. Finally, high earners will suffer as they will soon get no more than the flat-rate amount, even though they can currently get a higher state pension by building up S2P.