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Understanding the State Pension System - Maximise your Benefits

• The basic state pension – significant changes are taking place. It is therefore important for those affected to review their position without delay.

• The current retirement ages of 60 for women and 65 for men will be equalised by 2020 – anyone retiring between 2024 and 2046 will have a retirement age of 66 – 68.

• The current basic state pension (OAP) is £90.70 per week (£4,716 pa) and the level of pension is dependent on the number of years you have paid, or been treated as paying, National Insurance contributions (referred to as qualifying years).

• At present women require 44 qualifying years and men 49 to obtain the maximum entitlement.  For those retiring after 5th April 2010 there is good news – only 30 years will in future be required to maximise the basic state pension.

• Women in particular may need to take action before 1st April 2009 if they are short of qualifying years.  Women hoping to buy back missed state pension contributions face a near 50% increase from April 2009 (from £8.10 per week to £12.05 per week).  Further, normally only a maximum of 6 years missed contributions can be bought in a single tax year. 

Should you be using protection?

• The significant changes to pension legislation introduced on ‘A’ Day introduced the concept that investments into pension plans could be subject to a punitive tax charge of 55% if they exceeded certain limits.  This applied to benefits accumulated with all forms of pension including Occupation Pension Schemes.  The Government did, however, offer the opportunity for individuals to protect existing and future pension benefits such that any penalties would either be limited or, indeed, not apply.  The deadline for registering for protection, known as either enhanced or primary protection, runs out on 5 April 2009.

• The potential requirement to register for this benefit has changed as a result of the Government announcing that the ‘lifetime allowance’ above which any benefits may be taxed at 55% is being ‘frozen’ in 2010/2011 when it will have reached £1.8m.  This means that for some individuals who may have assumed that the allowance would continue to rise on an annual they could now be in danger of exceeding the limits.

• If you believe that you may be in this position or would like to know more about the protection available please do not hesitate to contact us.

Financial services advice is complex and ever changing and will depend upon the circumstances of each individual or business. Therefore whilst every effort has been made to ensure the accuracy of the information contained in this briefing, you should not act upon it without seeking professional advice.