Big changes are coming to old age pensions from next month. The basic state pension and the second state pension will end on 6 April and be replaced be a new combined state pension.
One immediate effect of this will be that members with a workplace pension such as the local government and NHS pension scheme or private sector pensions, will stop paying the reduced National Insurance contributions rate of 10.6%, which reflects the fact that they are opted out of the second state pension.
Instead, they will pay the standard rate of NI contributions – 12% on earnings between £8,060 a year and £43,004 a year – and earn a higher state pension.
Anyone earning more than £43,004 a year, or £827 a week, will continue to pay 2% on earnings above that figure.
From 6 April, the full state pension for anyone who has 35 years of qualifying NI payments, will be £155.65 a week, which will increase each year by whichever is higher of average earnings, CPI inflation or 2.5%.
But if a member worked for a long time while contracting out of a workplace pension scheme, and would have qualified just for the basic state pension before April, their minimum new state pension will be the single person’s £119.30 a week.
But any work, and NI payments, after April will go toward building a higher pension, up to the maximum of £155.65 a week (subject to yearly increases).
For each year a member pays the new higher NI rates, they will earn an extra £4.45 a week, up to the maximum.
So most members in workplace pension schemes will be paying more national insurance, but earning extra state pension at a very reasonable price.
The new full state pension is still below the poverty line, so members should not leave their workplace pension scheme.
In the LGPS, where the opt-out rates are highest among low-paid staff, members who feel they cannot afford the higher NI and LGPS contributions should consider paying half their normal contributions for a lower benefit until they can afford to pay at the full rate again.
And everyone should apply for an up-to-date state pension statement. Download the form at gov.uk.
There is, however, a danger that a number of people who reach pension age after April will be worse off as spouse’s pensions attached to the basic state pension are being withdrawn.
They will not be able to increase their state pension using their spouse’s or civil partner’s – or late or former spouse’s or civil partner’s – NI contributions.
However, if they are widowed they may still be able to inherit some additional state pension under transitional rules.
The equalisation and increase in state pension ages has meant that women born in the 1950s are faced with a larger than expected increase in their state pension age.
The government is being pressured into looking again at the transitional period and possible compensation for women whose state pension age is set to rise by more than a year by April 2020. Join the WASPI campaign on Facebook
There is a Parliamentary petition on this, with 148,000 signatures at the time of writing. Sign it online.
Dave Prentis, UNISON general secretary:
“The WASPI campaigners have worked tirelessly to show the impact that state pension changes will have on so many women – including many UNISON members. The government need to look again at the transitional arrangements for these changes.”