McLean’s Financial Services

Reforms designed to build a bigger pension provision

Changes have recently been made to the State Pensions system. In the main, these changes will only affect you if you reach State Pension age on or after 6 April 2010.

These reforms will also make it easier for people who reach State Pension age on or after 6 April 2010 to build up full State Pension provision.

These changes were introduced by the Pensions Act 2007 and the Pensions Act (Northern Ireland) 2008.

Changes to the Basic State Pension

The main changes to the Basic State Pension are:

• the number of qualifying years needed for a full basic State Pension will be reduced to thirty
• just one qualifying year of contributions, paid or credited, will give entitlement to some basic State Pension
• contributions through paid work and credited contributions will be treated equally in building up entitlement to basic State Pension
• basic State Pension will rise in line with earnings rather than prices (from 2012 at the earliest)

Changes to the State Second Pension
The State Second Pension will be simplified. It will provide a flat rate amount for each qualifying year built up (from 2012 at the earliest).

Changes for carers
This is a new credit which will count towards the basic State Pension and State Second Pension and will be available to people bringing up children and caring for disabled people.

Changes to the State Pension age
The State Pension age, which is the earliest age at which you can claim your State Pension, will increase.

The first change will affect women born on or after 6 April 1950 but before 6 April 1959 and has been in legislation since 1995. The second change, in the Pensions Act 2007, will affect men and women born on or after 6 April 1959.

Personal Accounts and changes to occupational pensions

These reforms are designed to encourage greater participation in occupational pension’s schemes. From 2012 it is planned that all eligible employees who do not have a good private pension will be automatically enrolled into either their employers’ existing pension scheme or a new savings vehicle called a Personal Account. To encourage participation, employees’ pension contributions will be supplemented by contributions from employers and tax relief.

For more information or to discuss anything in this article feel free to contact Doug McLean via email or phone.