Dangerous gap in new pension plans

THE GOVERNMENT’S plans to simplify the state pension scheme will leave thousands of people now approaching retirement age who do not have a full record of National Insurance contributions with no state pension at all, according to a warning from the charity Age UK.

The state pension will be transformed on 6th April this year — changing from a basic pension plus a top up for some people, to a “flat rate” state pension for everyone. But short-term transitional arrangements will mean huge swathes of the retiring population will not get the full flat rate pension.

And there will be thousands of pensioners that for the first time won’t just get less — they’ll get nothing at all.

Those who will fall through the net are the 70,000 people who don’t have enough National Insurance contributions to qualify for any state pension.

Age UK says this includes 50,000 women and 20,000 men currently in their 50s and 60s.

Under the current rules, there’s no qualifying minimum number of years of National Insurance contributions before you get some state pension. It means that people who have only worked for a few years will get something.

Under the new rules, anyone with fewer than 10 years of contributions will receive nothing at all. Age UK is warning that many of those who are affected have no idea that they won’t be getting a state pension.

Age UK’s Charity Director, Caroline Abrahams, says: “Big changes are about to come in to simplify the state pension system, yet we know that many people in their fifties and sixties are completely unaware of how they will be affected.

“In order to qualify for the full flat rate state pension they will need even more years of contributions: under the current scheme you need 30 years of contributions to get the full amount, whereas under the new scheme you will need 35.

Transitional arrangements will also mean that many thousands more won’t get the full flat rate state pension because they “contracted out” of the state pension top-up scheme for a period of their working life (which includes those in public sector pension schemes). The Government is reflecting these periods of “contracting out” with lower pension payments.

In total it expects two thirds of those reaching state pension age between April this year and the following April to get less than the flat rate. The average shortfall is set to be around £25 a week.

Abrahams said: “There is evidence suggesting that some people in this age group are so worried about what their finances will be once they retire that they are reluctant to think about it at all, but our strong advice is to take action now to find out exactly where you stand.”

The charity is urging anyone affected (women born on or after 6th April 1953 and men born on or after 6th April 1951) to request a pension statement from the Government, and to seek help from a charity like Age UK if they don’t understand what they are set to receive.