"Your Rough Guide to UK Pensions"

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UK Pension Reform


Changes To The UK State Pension

Apart from the changes to the UK state pension age, there are going to be several important changes to the state pension itself. These changes will apply to men born from 6th April, 1945 and women born from 6th April, 1950:

Link To Earnings

In the past, the state pension was linked to earnings - meaning that it went up in line with increases in average earnings. Some years ago, this was changed so that the state pension was linked to inflation, instead.

The problem with this is that average earnings generally rise a little faster than inflation - meaning that increases to the state pension have been lagging behind increases to average earnings, making life harder for those people who depend on the state pension.

This is now going to be changed so that the state pension is once again linked to earnings. The government have said that they will probably do it in April 2012, but that this will be subject to "affordability" - which could mean that it is delayed or even doesn't happen at all.


National Insurance Contributions

At present, most people need about 39 years of NI contributions to qualify for a full state pension. This has often been difficult to achieve, especially for women, who may have taken several years out to bring up children.

From April 6th, 2010, these rules are changing.

Both men and women will only need 30 years of NI contributions to qualify for a full state pension. However, you will have to continue paying NI until you reach the state pension age.

The rules surrounding NI contributions are also being changed so that mothers who stay at home to care for young children (up to 12 years old) and people who are full-time carers for disabled people will get full NI credits for the years they spend doing this - meaning that being a carer or mother should not make it any more difficult for you to qualify for a full state pension.

Pension Credits

Pension Credits are the government's system for topping up state pension payments. At present, the Pension Credit system has two parts:

Guarantee credit - this is for people who have less than £6,000 in savings and depend on the state pension. It guarantees a certain minimum income per week

Savings credit - this is for people who have another income as well as the state pension. It provides a small top-up amount each week

The guarantee credit presently rises with earnings and the government have said that they are not going to change this.

At the moment, both men and women qualify for the guarantee credit from age 60. This age is going to be increased to 65 in the same way as the women's state pension age.

The savings credit currently increases faster than earnings, for some complicated reason. This seems to unreasonably favour people who already have better pensions, and is going to be scrapped.

From 6th April, 2008, savings credit payments will rise in line with earnings.

From 6th April, 2015, savings credit payments will rise in line with inflation - which will mean they rise more slowly.


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