State Benefits have a nasty habit of being changed to suit political and budget requirements of the day, and not always to the benefit of the pensioner
State Benefits - A Brief History
The state pension schemes were never designed to provide meet all of a pensioner's financial needs, but to help prevent the fall into absolute poverty.
The very first pensions were means-tested and payable only to those over age 70 - which in the early 1900s was many, many fewer than there are now.
In order to pay for social reforms including higher pensions, the 1909 Budget introduced significantly higher rates levels of income tax alongside the introduction of two taxes that we now call Capital Gains tax and Inheritance Tax. Over the years, there have been changes so that unlike the original pensions, the Basic State Pension today is based on the number of qualifying years gained through National Insurance contributions (NICs) you've paid over your working lifetime. (Or, in some cases, that you have been credited with)
Additional pension schemes based on having made extra contributions have also been operated over the years, including :-
|
|
Graduated Pension(during the 1960s and early 70s),
State Earnings Related Pension Scheme -SERPS- (from 1978 to 2002) and
State Second Pension (S2P) - the current version.
For those over 60, there are also two types of Pension Credit. One (Pension Guarantee Credit)is based on your total income from all sources and is designed to pay you an additional amount if you are below a minimum threshold every week; the other (Pension Savings Credit)
Calculating Your Entitlement
In 2009-2010, the full basic State Pension is £95.25 a week for a single person and £152.30 a week for a couple, but your individual circumstances may affect the amount you get. The simplest and most accurate way is to contact the government's Pension Service by telephoning 0845 300 0169. They will ask you a number of questions and complete the relevant form (BR19). The result of the forecast will be posted to you around a fortnight later.
For White Horse clients, we obtain this information directly from the Pension Service and incorporate it into the holistic financial plan that we prepare so that we can build up a true picture of the position at retirement.
How long ?
According to the Office of National Statistics, life expectancies are continuing to increase and it is pretty safe to assume that most of us will reach retirement age and may have 20, 30 years or more when we will be living and spending without any earnings.
As an example, look at the number of birthday cards (previously telegrammes) sent out by the monarch for those who reach 100. In 1917, 24 such messages were sent. This rose to 255 by 1952 and to 8,439 by 2007. To quote Buckingham Palace:
"This reflects the fact that people are healthier, due to higher living standards. More and more people are reaching ages which in previous decades were very rare."
What all this adds up to, of course, is a need to plan ahead.
State Benefits have a nasty habit of being changed to suit political and budget requirements of the day, and not always to the benefit of the pensioner.
Take for example the changes to state retirement ages. For many years, this was set at 60 for women and 65 for men. This has now changed - see below:-
Currently, the State Pension age is 65 for men born before 6 April 1959. For women born on or before 5 April 1950, State Pension age is 60.
The State Pension age for women born on or after 6 April 1950 will increase gradually to 65 between 2010 and 2020.
From 6 April 2020 the State Pension age will be 65 for both men and women.
Then, a few years' later it changes again. Between 2024 and 2046 the State Pension age will increase for both men and women. This increase will be gradual, happening over two years every decade. The changes will mean that State Pension age for men and women will increase:
from 65 to 66 between April 2024 and April 2026
from 66 to 67 between April 2034 and April 2036
from 67 to 68 between April 2044 and April 2046
The underlying message is that you would be well advised to consider and save money whilst it is possible to earn, so that there is money to spend during the years when it isn't. Although some people will choose to use savings accounts (particularly tax-free Cash ISAs) and maybe second properties as part of their planning, the most common way to put money aside for retirement is to use a pension plan to supplement whatever is available from the State.