18th March 2013
The Government is bringing the state pension reforms forward by a year to 2016. As a result many women will an increase in their state pension.
The move means that women will see an increase in their average state pension to about 80 per cent of the average for men, rather than current 75 per cent increasing and then reaching parity around 2040. The Government is also to bring forward implementation of its long term care reforms by a year to 2016 as well, which will cap the amount people have to pay towards long term care nursing fees at £75,000.
Calculations by pensions firm Hargreaves Lansdown suggest that women will receive an average of an extra £9 a week over the first ten years following implementation of the reform. Around 740,000 people will hit age 66 in 2016 and therefore be affected.
There could also be a significant impact on final salary schemes with around 3,290 contracted out final salary schemes in the private sector, providing benefits to around 1.6 million employees.
These schemes will face an increased bill for national insurance – in fact both employers and contributing members could be affected – and as such the move may accelerate the already rapid decline in final salary benefit provision.
Most schemes are closed to new members but they may close to existing members too.
The Chancellor George Osborne will also benefit from a windfall of around £5.5 billion as a result of the earlier scrapping of contracting out.
Hargreaves Lansdown’s Head of Pensions Research Tom McPhail says: “This will be welcome news for the tens of thousands of women who would have missed out on the higher state pension as a result of reaching their state pension age just months before the introduction of the new terms.”
“The pensions system is highly complex and this announcement will have knock-on consequences, notably for final salary scheme members who are likely to see their scheme terms adjusted a year earlier. It also illustrates the unpredictability of the pension outcomes, whether from changing investment conditions or from the government changing the rules. Pension providers have an important role to play in helping pension members to adapt their arrangements in the face of these constantly changing circumstances.”