Higher-earners set to lose out after state pension changes

Pensioners look set to benefit from a new flat-rate pension announced by the government today, but Preston-based financial advisory group Taylor Patterson warns some people will lose out.

The 2013 budget will see the current basic state pension merge with the state second pension to form a single scheme, providing an initial £144 a week, in today’s money, for those with a 35-year National Insurance record.

This is good news for those on lower incomes, who will see their basic state pension increased from £107.45 as it stands at the moment, but higher earners face a cut in retirement income as they would previously have been entitled to a top-up funded through their National Insurance contributions.

Individuals who retire before 2017, when the changes will be introduced, will not receive the higher flat-rate pension.

Colin Wildman, employee benefits consultant at Taylor Patterson, said: “On the face of it, today’s announcement is great for lower income earners who will benefit from a higher flat-rate pension of £144 a week.

“However, fewer people will qualify for the maximum state pension as the government has increased the minimum National Insurance (NI) contribution period from 30 years to 35 years. There is also a minimum qualification period of ten years, so anyone with fewer than ten years of NI contributions, will not get a state pension.”

”Individuals on higher incomes will also lose out. Currently, higher earners can receive a state pension of up to £250 a week. After April 2017, it will be capped at £144 a week, in today’s money, although they’ll be able to keep benefits accrued up to that point.”

For individuals on higher incomes, Colin’s advice remains the same – invest in a private pension now before it’s too late. “For those individuals who are investing in their future wisely, this announcement won’t come as a surprise. Today’s announcement reinforces the point that the state pension alone is insufficient to support the income needs of most individuals during their retirement years.