Data released by the Department of Works and Pensions has highlighted a staggering difference in state pension payouts. Figures show pension incomes ranging as little as £7 a week up to over £230 a week.
The huge difference in payments stems from the baffling array of additional top-ups available in the existing pension system. The government is planning to remove these variations by introducing a new flat rate pension scheme.
Another cause of the massive gulf between individual payments is incomplete National Insurace contributions. Taking time of work to raise children and extended periods of unclaimed unemployment can affect state pension payments.
The flat-rate scheme payments will still be affected by missing NI contributions.
The DWP likened the existing pension regulations to a roulette table that would, ‘…baffle even Einstein.’
The introduction of a single-tier, flat rate pension scheme is designed to remove uncertainty people may have as to their entitlement.
Full details of the flat rate system will be detailed in a Government white paper due to be published later this year.
What will you see in the White Paper?
Proposals in the White Paper are expected to include:
- A complete 30 year record of NI contributions will entitle you to the full, flat-rate pension (worth about £160 when the scheme launches in 2016)
- If you are currently collecting a pension, you will be excluded from the flat-rate
- Means-testing will be significantly reduced but not eliminated entirely
- Certain groups (women, self-employed and pensioners) will get higher state pensions
Dr Ros Altmann, from Saga, said, ‘The new pension system should be fairer and simpler and no longer treat women as second class citizens…’
Is anyone actually living on £7 a week pension
No, Whilst it’s true that pensions as small as £7 are being paid this sum can be topped up. Additional payments such as housing benefit and council tax benefit may be claimed.
The poorest of claimants could also be eligible for a boost to their income. This pension-credit is means tested. A single pensioner earning less than £7,420 should qualify.
Top up payments for pension-credits consist of:
Guarantee credit: 142.70 a week if single, £217.90 if with a partner
Savings credit: £18.54 per week if single, £23.73 if with a partner
The Government has made an assurance that contributions and credits for additional state pension benefits will be protected.