With effect from April 2016 the old state pension system of Basic State Pension, State Second Pension and Serps will be abolished.  It will be replaced with the new Single Tier State Pension.  Subject to qualifying years, everyone will receive the same amount, predicted to be around £150 per week.

As you can imagine it is not going to happen overnight and there will be winners and losers in order that the switch over is not costing more than the current arrangements, at least in the early years.

The winners will be those workers who have contracted out of the secondary state pension and paid into either an occupational or personal pension or into a final salary pension. The contracted out benefits i.e. the diverted National Insurance contributions into their personal pension could be a healthy lump depending upon the number of working years.  Under the old rules these workers would receive the Basic State Pension alongside their personal pot.  Now however, these people will continue to build up their State Pension and given adequate years will qualify for the new Single Tier State Pension in addition to their personal pension.

The losers are those workers who have never contracted out but built up an additional State Pension fund.  They will be able to keep the funds accrued but from April 2016 the pension is frozen and no matter how long they continue to contribute before retiring the pension will not increase.

Ironically as can be seen above the winners are going to be those that have already made pension provision.

If you retire before 6 April 2016 you will be on the old system and receive State Pension according to the old rules.

Sue Jewell

Sue Jewell