This week we have seen our coalition Government turn their attention to the State Pension and the way the current benefits are provided. I am sure there will much press coverage, comment and concern about future changes, both for those who may be effected in the shorter term, from 2017, and for those who hope to claim this benefit into the longer term.
I wanted to provide a summary, and for the purposes of this Blog, I have divided this into the following sections:
The Past and Present
Currently, the basic State Pension amounts to £107.45 per week. This income is paid gross, but is taxable and increases with the Consumer Prices Index (CPI) with a minimum guarantee of 2.5% if CPI falls below this rate, which it did in 2012. On top of this, you might also receive additional State Pension income from past accrual of the State Earnings Related Pension (sometimes known as SERPS) or its successor, the Second State Pension (S2P). I have seen this additional pension benefit when added see the overall pension paid double on regular occasions.
My current understanding is that those who have State Pension benefit in payment before 2017 will not be affected by the possible proposals.
You can probably tell that this can be a complicated calculation when taking into account all the varying factors, with a maximum accrual achieved over 30 years (proposed to increase to 35 years). Here lies part of the perceived problem and the target to simplify the process. It is also proposed that no State Pension will be achieved, with a proposed minimum of 10 years National Insurance accrual to qualify for any State Pension.
How do I check my current State Pension benefit?
You can check your current accrual of your State Pension by completing a BR19 State Pension Forecast Form (available here).
State Pension Deferral
It is currently possible to defer the State Pension after your normal State Pension age (which we know as been increasing over recent times and still increasing), seeing the benefit deferred increasing by 1.0% for every 5 week period. This increase amounts to 10.4% over a full year and this option can be beneficial in financial planning for those who, as an example, continue to work and have no immediate need for the income.
For information, this increase can be taken as taxable cash or increased taxable income. It will be interesting to see if this option survives the final ruling on future changes.
The Future?
The new proposals put forward for 2017 suggests a flat rate of State Pension of around £155.00 per week in total (about £144.00 per week in today’s terms). Of course, this figure may change when everything is finalised. Past SERPS and S2P accrual (which might have given a higher income if the rules had not changed) will be gone.
Of course and as usual, there are winners and losers by changes in legislation. Winners are likely to lower earners and some have indicated females who opted out of the State Pension many years ago. Losers are likely to be higher earners or medium earners who did not contract-out of SERP's (option started in 1988 and stopped around 2 years ago).
Summary
It is suggested that the other 'winner' in these proposals will be the Government, with an overall reduction in long term costs. We are all living longer and, understandably, this places greater burden on the pension system, whether that be the State system or private sector schemes. Clearly, planning for your future retirement will become ever more important to secure future benefits.
No individual advice has been provided during the course of this blog. Pension and retirement planning should be planned for carefully and if you would like to receive individual advice on this subject, then please contact the team at Chapters Financial Limited on 01483 578800
Keith G Churchouse FPFS
Director, ISO22222 Certified Financial Planner
Chapters Financial Limited, Guildford, Surrey
Chapters Financial Limited is authorised and regulated by the Financial Services Authority, number 402899.
Monday 14 January 2013
Wednesday 2 January 2013
Economic Data & Views for 2013 and beyond
Some of our clients will know
that to maintain our high standards and independence, we consult with a
specialist investment company, Cormorant Capital Strategies Limited, to ensure
that our investment recommendations remain current and robust.
Cormorant Capital Strategies has
collated the following thoughts using recently published data, giving views on
various economic issues. Please note
that future predictions are, as suggested, only predictions and cannot be
relied on for the future. These indicators can and will change. Past
performance is not a guarantee of future performance.
A review of the latest OBR Economic and
Fiscal Outlook
The Office for Budget Responsibility (OBR) published its latest
Economic and Fiscal Outlook on 5th December.
1. Gross Domestic Product
Not surprisingly, given its forecast in March for economic growth in
2012 at a rate of 0.8%, the OBR has had to concede that the ‘economy has
performed less strongly... than we expected’. A similar concession would be
required from the median of independent forecasts too; back in March the
consensus outside forecast was 0.5%. Barring surprising strength in the fourth
quarter, it seems likely that output in 2012 will be flat or negative. The
OBR’s updated 2012 forecast is for a fall of 0.1% year-on-year.
Its central forecast for 2013 calls for 1.2% growth (not dissimilar to
the median of independent forecasts of 1.1%) and for 2.0% the following year
rising, optimistically, to 2.8% in 2017. The OBR’s range of estimates suggests
that there is a 1-in-5 chance that the economy will shrink during 2013.
Output remains 3.0 %
lower than during its prior peak in the first quarter of 2008.
2. Inflation
Consumer Price Index inflation is expected to fall in the next few
years from the current rate of 2.7% (November) toward the target rate of 2.0%
from 2015 onwards. The OBR, just like the Bank of England, have been surprised
by the larger-than-expected upward effect of tuition fees and domestic energy
price increases.
3. Employment
The employment situation is characterised by relative strength, given
such poor rates of economic growth. The OBR’s revised forecast shows a 0.7%
decrease (from 8.7% to 8.0%) for 2012 since the March issue of the Economic and
Fiscal Outlook.
4. Government Debt
The OBR are forecasting Public Sector Net Borrowing[1]
(PSNB) to come in at around 5.1% of GDP by March 2013. Exclude the transfer of
Royal Mail pension assets to the public sector and this rises to 6.9% of GDP.
Public debt[2]
is expected to continue to rise toward a peak of 80% of GDP in early 2016.
5. Summary
Economic output remains substantially below the level it reached early
in 2008. The latest central forecast projections from the OBR suggest that the
British economy will not recover the ground it has lost until the final quarter
of 2014. If the OBR is correct in its assessment, relatively low growth in the
years ahead will be accompanied by sustained low rates of inflation (though CPI
will remain above target in the short term) and a steadily improving employment
situation. Total government debt will peak in 2016 at a level close to 80% of
GDP with net borrowing at its highest in 2014 at something like £100 billion.
No individual financial advice is provided during the course of this
Blog.
I hope you have found this information of interest.
Happy New Year to all our Blog readers. I hope 2013 is a
prosperous year for us all.
Keith G Churchouse FPFS
Director, Chapters Financial Limited
Chapters Financial
Limited is authorised and regulated by the Financial Services Authority, number
402899.
[1]
Public Sector Net Borrowing: A measure of
the amount of money the Government has had to borrow in order to bridge the gap
between expenditure and revenue.
[2]
Public Sector Net Debt: A measure of how
much the UK public sector owes (to UK private sector organisations or overseas
institutions) at a point in time.
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