Pension reform affects employers and individuals
28th May 2014
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Those who already receive a pension or those who reach pension age before this date will be treated according to existing rules.

Single-tier pensions will replace the basic State Pension and Second State Pension with a flat-rate pension that is set above the basic level of means-tested support. It will also replace additions such as the Category D pension and the Age Addition. The Savings Credit element of Pension Credit will also be closed to anyone coming of State Pension Age after the start date.

The new system will require 35 qualifying years of national insurance contributions (NICs) or credits if individuals are to receive the full amount. Those with fewer than 35 qualifying years but more than the minimum qualifying period will receive a proportionally smaller single-tier amount. Transitional arrangements will be put in place to take into account the NIC records of individuals before the implementation date.

HMRC says the single-tier pension will make it easier for people to understand what they need to save for their retirement. It will also support the introduction of automatic enrolment into workplace pensions.

Auto-enrolment has been phased in over a number of years, following ongoing concerns that individuals are not saving enough into their personal pensions. Auto-enrolment requires most UK employers to automatically enrol eligible workers into a qualifying pension scheme and to pay a minimum contribution into the fund.

But as the phased introduction of pensions auto-enrolment continues, recent research has suggested that more than 80% of employers are facing increased costs as a result of the new regime. These figures imply that while some of the increased costs are accounted for by employer contributions, preparing data and dealing with administration are also proving to be significant cost factors.

The state-backed provider National Employment Savings Trust (NEST) said there is a significant improvement in living standards among households with a retirement income of at least £15,000 per year, and that those whose state and personal pension funds are likely to be less than this amount should consider increase their pension contributions.


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